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CASH: The New 4-Letter Word in the World of Self-Storage Lending


By Anita Huedepohl

Everything we know about lending has undergone a 180-degree turn. Those outside the self-storage industry are now running their businesses with virtually no working knowledge of the underpinnings of a successful loan transaction. Government-appointed bureaucrats are now in charge of the show, and have taken away many of the programs that were essential to successfully closing a loan for clients. Armed with what seems an endless supply of red tape, they’ve snared even the finest mortgage loan professionals in a web of controversy created by the very system that produced a lion’s share of revenue for the very entities that are now crying foul.

The ironic thing is I hear myself telling self-storage owners the same thing over and over again:  “If you’re looking for any cash out, be prepared to document its usage. In other words, no Mexico money!” Cash is the latest four-letter word in the English language. It may sound like a joke, but it’s an unfortunate reality in today’s mortgage landscape where we suffer daily the slings and arrows of government intervention that has helped the residential sector but hampered the commercial sector in more ways than one.

Facility owners who wish to refinance an existing loan on a commercial property are subject to more intense scrutiny just for a “rate and term,” but when you couple that with a request for cash out, be prepared. The lender will require a well-documented explanation of why you need your own money and where it’s going to be spent. Amazing, isn’t it? You have to explain to a complete stranger where you’re putting the very equity you spent your career building.

That’s modern-day America at its finest, and we can place the blame squarely on the shoulders of the folks who got rich quick in the finance industry by allowing fraudulent loans to be underwritten. Although the industry is now on the other side of the upheaval in 2008, we’re still paying the price for the less-than-ethical business practices that led us here. So how do we fix the problem?

A Deal That Makes Sense

The remedy is to be responsible and ask only for what’s practical given the current economic climate. I often hear from owners who want to expand their current facility and need “cash out” to build some additional units and improve the shell space they have onsite. One of the first logical questions is: What is the current occupancy? If they tell me 65 percent, then we have to wonder if the funds are genuinely going to build more units since they’re at less than adequate occupancy now. When we march through the rent roll and profit-and-loss statement, there’s often a disparity of cash flow that precludes the borrower from moving forward.

While we understand a borrower’s excitement for growing the business, the deal has to make sense. Of course, if you’re overflowing with business and occupancy is maxed out, we can see the window to using some cash out to offer more units to your waiting list or boat-storage space because the other facility that once offered it is now a retail store.

It’s not enough to ask for the amount of money with a sticky note that says plumbing and electrical next to it. Let’s say you’re refinancing your property for $3.5 million and need an additional $750,000 for property improvements. Take that $750,000 and get estimates from real contractors for all of the work that needs to be completed. Here’s an example of what estimates would look like for XYZ Self-Storage.

Self-Storage Refinancing***

If you couple the accompanying chart with legitimate estimates from verifiable contractors, you’ll likely be staring down the face of an “approval” stamp. The tact and organization of the approach you take can go a long way to securing the funds you’re seeking.

I recently received a hand-written note from a client asking for $150,000 to “fix up” her buildings. When I explained her request in this format would never be approved by a lender, she became indignant and demanded we get the cash based on her request. You can imagine how things went from there.

On the other hand, another client sent a pristine letter for a loan request outlining his exact needs for improved lighting, repainting the recently hail-damaged buildings, and adding landscaping to improve the appearance to attract new customers. His desire to improve the facility’s curb appeal was spurred by a new 1,200-unit apartment complex opening less than a mile away. In addition, he sent us maps of the area showing a new shopping center with a coffer shop opening nearby, which clearly illustrated the need to make improvements, even to an underwriter sitting in a cubicle some 2,000 miles away!

Getting cash from lenders depends heavily on how you present the facility’s needs. Cash doesn’t always have to be a four-letter word.

Anita Huedepohl brings more than 25 years entrepreneurial experience to her current position as owner of Liberty Funding. She’s worked in the financial sector for more than 10 years and is experienced in all types of mortgage financing. She launched Liberty with the goal of providing market expertise to underserved sectors, namely the self-storage industry. To reach her, call 615.417.4710; visit

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