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Loan Types for Self-Storage Owners and Investors: Insight to Weigh Your Options in 2012


By Noel Cain

If one of your goals this year includes refinancing the debt on an existing self-storage property or using debt to purchase a new facility, it’s time to review the loan options available and how you might use these tools to make 2012 a successful year financially. The following overview will summarize the alternatives as well as their pros and cons.

Commercial Mortgage-Backed Securities

Commercial mortgage-backed security (CMBS) lenders are back with revised loan programs that still feature long-term fixed rates up to 10 years. Loans are also non-recourse, with the exception of environmental hazards and fraud. Generally speaking, these loans are best suited for stabilized, class-B and better properties in major metropolitan areas.

Most lenders prefer loans greater than $3 million, which will limit eligible properties. There are few options for loans less than $3 million, with only one or two lenders offering programs. Borrowers need to have significant liquidity in the neighborhood of 10 percent of the loan amount, with net worth equal to the loan amount.


  • CMBS loans offer long-term fixed rates with terms from five to 10 years.
  • Higher-leverage loans are available with advance rates up to 75 percent loan-to-value (LTV).
  • Lenders are transactional in nature, with no further banking obligations.
  • Loans are non-recourse to the borrower.


  • Few options exist for transactions of less than $3 million, which make up the bulk of self-storage loans.
  • There are significant upfront good-faith deposits and high transaction costs.
  • After the closing, there's limited flexibility for expansion or significant changes to the property.
  • Includes high prepayment costs (defeasance or yield maintenance).

Insurance Companies

Insurance-company lenders are, in many ways, similar to CMBS lenders in that they specialize in long-term, fixed-rate loans to high-quality facilities in major metropolitan areas. Most insurance companies will not lend less than $5 million, with many having minimum loan sizes of $10 million, making it very difficult to qualify for all but a few self-storage properties.

Similar to CMBS loans, insurance-company loans are generally made on properties that are stabilized or near stabilization with strong cash flow. Borrowers need to have significant net worth and liquidity. Insurance companies often offer non-recourse and recourse loan options.


  • Insurance-company loan programs offer fixed-rate, long-term loans including fully amortizing loans up to 20 years.
  • Interest rates are generally the lowest available.
  • They have greater flexibility after closing for expansion or other significant changes.
  • Non-recourse options are available.


  • Borrowers need to have significant net worth and liquidity, similar to CMBS loan requirements.
  • Loan advance rates are generally limited to 65 percent LTV, with many insurance companies limiting advance rates to 50 percent or less.
  • Very few properties will qualify; most are on the West Coast and East Coast or in large metros.
  • There are high prepayment costs (typically yield maintenance).
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