The Challenge of Financing a Boat/RV-Storage Operation: Understanding Demand Generators and Today's Lending Parameters

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Financing for commercial real estate continues to be a challenge, especially for property types outside the four core asset categories. While not considered to be one of the central property types, self-storage has some advantages given that cash flow and occupancy declines have been less drastic than those of other assets during the recession. Given this performance, self-storage financing has been possible during the economic downturn, though at more modest terms than in the recent past.

If you thought financing or refinancing for a traditional storage property has been difficult since 2008, consider the special case of lending for boat/RV-storage businesses. While similar to traditional self-storage in some respects, boat and RV storage has distinct differences that can make financing even more challenging.
 
Demand Generators are Key

Traditional self-storage has proven it can weather economic fluctuations. Not only are customers willing to pay for storage to hold their possessions, the industry attracts business users, which broadens the customer base.

In contrast, boat/RV-storage properties store discretionary items, which customers may choose to sell in a down economy. In addition, business customers are less likely to use these specialized facilities, thus limiting the potential customer base. Given these fundamental limitations, prime property locations near “demand generators” are important from a financing point of view.

Location and demand are arguably the most important criteria lenders examine when evaluating a property. Traditional storage facilities often have a retail-type presence, with strong traffic counts and highly visible signage. This type of location can be enough to prove the property’s strength to a potential lender. In contrast, boat/RV-storage facilities need to show a proven demand generator with the ability to attract and retain customers.

So what exactly is a demand generator? In its simplest definition, it’s a market situation or geographic feature that spurs customer demand for the storage product. For example, a boat/RV-storage demand generator could be a single-family development with small lots and garages or prohibitive subdivision ordinances.

Another might be a senior-oriented gated community with strict covenants that restrict residents from storing boats and recreational vehicles. Other demand generators are recreational areas such as lakes, rivers and campgrounds that naturally attract recreational equipment that requires storage while not in use.

Lenders take these demand generators into consideration as they evaluate a property. A recent boat/RV-storage property that was successfully financed was located just over a mountain pass on the way to a popular lake. Customers didn’t want to tow their equipment over the narrow and daunting mountain. Instead, they found it attractive to rent storage, which allowed them to pick up their boats and campers on the other side of the pass and closer to the lake. This is a classic case of a demand generator.

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