A final hurdle storage owners face is active CMBS programs have loan size, property classification and other restrictions that do not favor self-storage economics. Most have minimum loan-size criteria of $10 million (in some cases as high as $20 million), which alone presents a major obstacle for many self-storage owners and investors.
It’s also not uncommon for lenders to limit their current CMBS offerings to retail, office and industrial properties given their familiarity and expertise with these asset classes and the sheer volume of transactions available. Over time, these restrictions will become less onerous, as additional capital providers enter the space and lending competition increases.
The good news is that as CMBS lenders and insurance companies begin to lend again in earnest, the liquidity they present to the market will take pressure off the system down the line, freeing up capital at the regional and local bank level. With CMBS lenders providing a much-needed outlet for larger financing transactions, local and regional banks will once again be able to concentrate on a greater number of borrowers, such as storage property owners, with smaller loan needs.
Hard-Fought Victories Bode Well Long-Term
Despite that it may take time for CMBS capital to make itself available to mainstream self-storage borrowers, our industry has achieved two hard-fought victories during this current recession and period of unprecedented illiquidity. First, the government’s willingness to analyze and accept self-storage as a TALF-eligible property type validates storage as an acceptable asset class for all institutional investors. Second, self-storage has outperformed all other property types in terms of CMBS loan delinquency rates throughout the recession; a fact that will surely resonate with lenders and investors as financing markets improve during the next several years.
Each individual battle victory helps put self-storage on equal financing footing with better-known commercial-property types. Thanks to these achievements, we expect lenders will be more willing to include the storage-asset class in their product mix going forward, which is a positive trend for self-storage investors given the rocky roads they’ve been forced to travel in recent years.
Shawn Hill is a principal at Chicago-based The BSC Group, where he provides mortgage-brokerage and financial-consulting solutions to self-storage and other commercial real estate owners nationwide. He can be reached at 773.517.8504; e-mail firstname.lastname@example.org.