Self-Storage in the South-Central States: Real Estate Snapshot

Michael L. McCune Comments
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I recently assembled a roundtable of real estate experts to discuss the state of self-storage in the South-Central United States. I asked them to comment on their local markets and share their predictions for future performance. Joining us in the discussion are:
 
  • Bill Barnhill, Stuart LaGroue and Shannon Barnes, Omega Properties Inc., Mobile, Ala.
  • Jon Cerruti, Jack Stumpf & Associates Inc., Harvey, La.
  • Barry Comiskey and John Owens, Westar Commercial Realty, Lubbock, Texas
  • Paul Grisanti and Mike Helline, Grisanti Group Commercial Real Estate, Louisville, Ky.
  • Mark Keys, Cornerstone Realty, San Antonio
  • Barney Lehmbeck and Mike Procter, JR Fulton & Associates, Oklahoma City
  • Richard Minker and Tyler Trahant, Minker Trahant & Associates, Forth Worth, Texas

What terms are you seeing in today’s market?

Barnhill: Loans are available from some local community banks and a few insurance companies. The community banks offer loan-to-value (LTV) of 75 percent, 20-year amortization and interest rates in the high fives to 6.4 percent, with a five-year maturity. The few insurance companies making loans want a 55 percent to 65 percent LTV.

All of the above loans come with personal liability, although some banks will prorate the guaranty in the event there are multiple partners. The regional bank in our area is effectively out of the market for lending on self-storage and other commercial real estate. If lenders are willing to quote a stabilized project, the amortization, LTV and debt-coverage ratios are all quite stringent. The maturity offered is two to three years. They also require a new, updated appraisal.

Cerruti: A lot of sales are from local buyers and banks—people and companies who are familiar with the area. Familiarity gives a comfort level in these uncertain times, and banks are very cautious right now. Owner financing gives everyone an edge. The basic formula for banks right now is 70 percent to 75 percent LTV with 15- to 20-year amortizations, a balloon in three to five years, and 6.25 percent to 6.5 percent interest rate. Of course, a lot has to do with the status of the facility and the client.

Comiskey and Owens: Speaking from the last six months, our most recent self-storage loans have come from local or regional banks. As many of us know, self-storage financing has changed dramatically over the past year. In today’s market, we’re seeing amortization tables around 20 to 25 years, which is down from the former 30-year spread. LTV ratios have gone from as low as 90 percent to 70 percent to 75 percent in today’s market. Interest rates on these loans have been around 7 percent.

Grisanti and Helline: We’re finding that for income-producing self-storage properties, banks are willing to loan at 80 percent LTV. Of course, for development of self-storage, the requirements are more stringent, somewhere between 50 percent and 70 percent LTV, and this depends on the credit and other income of the applicant.

Keys: Our best sources for self-storage loans today include community banks, regional banks and insurers. Rates are presently between 6 percent and 7.5 percent for loans with five- to 10-year terms and amortization periods from 15 to 25 years. LTVs are ranging from 65 percent to 75 percent, and personal recourse is almost always required.

Lehmbeck and Procter: Loans are being provided mostly on a local level, with 20 percent to 30 percent down, and rates are ranging from 5.5 percent to 7 percent, adjusted annually with 20-year amortization and ballooned at five years.

Minker and Trahant: The local banks are most willing to look at storage deals. Typically, we are seeing 65 percent to 70 percent LTV required for purchases. Perhaps the most significant change recently is the underwriting. Lenders are not willing to finance a property based on future income, only on in-place income. This is impacting the sale of those properties in lease-up, or those with lower occupancies where the current valuation is not in line with the owner’s expectations. In our experience, the only lenders willing to loan on future income are those taking back the property.

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