The role of a smaller operator/owner goes beyond property management and must also include asset management. Often overlooked, this component can provide a tangible competitive advantage.
A critical part of managing the asset is keeping the financial partners, including the lender, informed about operating performance, even when this is not specifically required. If you’re experiencing problems, it’s advisable to speak with your lender as early as possible. Odd as it may seem, this is another area in which being smaller can often be to your advantage. So many lenders are currently dealing with much larger non-performing credits with worse scenarios and loss implications than you’ll ever present to them. Keep this in mind, and try to work this to your advantage.
When the capital markets make dramatic shifts, all owners are affected. Over the past 18 months, three of the four self-storage real estate real investment trusts (excluding Public Storage) needed to test their ability to raise capital in a distressed capital-market environment. With much effort, all three succeeded, effectively reinforcing the notion that larger well-operated institutions are capable of assessing capital easier than smaller operators. However, lessons learned by these giants in our sector is capital is not easy to secure; and to do it, one needs to be diligent, creative, resourceful and realistic.
However, if a lender is still actively lending, it may be easier for it to put smaller loans on the books than larger ones. Additionally, lending limits are based on a bank’s capital structure, which, in many cases, has been reduced in this economy. Smaller borrowers can theoretically access a larger base of lenders. In this regard, I highly suggest you seek the advice of a professional mortgage broker to expand the base of capital sources and market your deal, given that competition for loan dollars is more competitive than any time in recent history.
The self-storage industry is still highly fragmented with a large preponderance of smaller operators; nonetheless it’s an industry that will be well poised to survive this economic cycle. Take aim at your strengths as a smaller operator to run your business better and manage your financial position, and you just may find that you’re too small to fail.
Neal Gussis is a principal with The BSC Group, a Chicago-based commercial real estate financing advisory firm, where he supports self-storage owners nationwide. He can be reached at 847.922.3750; e-mail firstname.lastname@example.org.