Financing remains one of the most critical issues in the world of Canadian self-storage. Lending is returning to the forefront with clear improvement over the dismal state of financing last year at this time. The big banks and lending institutions are slowly but surely beginning to poke out from underneath the proverbial “dark rock,” the looming guise of the recession.
But let’s not get too ahead of ourselves. Although there has been a marked positive turn, there is a list of definitive prerequisites today that were more relaxed three years ago. Further, values are significantly more conservative, leverage is lower, amortizations have decreased (the lowest in 12 years) and, generally speaking, there’s a lot less flexibility.
An additional point to highlight is there’s no specific formula that determines how loans are currently being allocated by the lending institutions. Creating consistency with buyers and sellers, cash flow is king and all that matters, which means no more pro formas.
In summer 2007, when the market was at its peak, financing was available based on the look and location of a facility. Today, those requirements still apply, but so does the borrower’s balance sheet, operating history and experience, as well as the facility’s cash flow on a trailing basis.
A positive aspect of the current finance market is the first-mortgage market is performing reasonably well, and self-storage is appearing stable with few distressed opportunities. There are many storage operators who maintain excellent operations and are currently eyeing expansions, acquisitions or development opportunities.
With respect to refinancing, the Canadian market has remained in a relatively good position. Self-storage continues to grow and perform better than most other forms of real estate, but still receives lower leverage, implying there should be few, if any, forced sales directly caused by debt or performance.