By Anita Huedepohl
Since the market crash, many local and regional lenders are calling in self-storage notes, even those that have performed perfectly for 10 or 15 years without any late payments. The typical call a self-storage lender receives is from a disillusioned bank customer who just received the letter from his local loan officer, the one informing him his loan is no longer needed and he must find a new home for it within 30 to 60 days.
Banks are liquidating commercial loans based on pressure from the federal government to empty their books heavy with mortgage debt in favor of stronger depository relationships. This leaves most borrowers out in the cold, not knowing where to go, since the vast majority of banks are following suit.
What makes an underwriter approve a self-storage loan package? Some facility owners and investors have spent years, sometimes decades, creating the ability to walk into their local bank and sign on the dotted line for millions of dollars based on the relationship theyve built. Since you may not be familiar with all of the nuts and bolts that make up an appealing loan package, nows the perfect time to learn about the loan process and how prepare all the necessary documentation.
A loan package must fit a lending institutions present appetite, meaning it must appeal to the initial underwriter and those beyond. It must also pass a boards approval for final lending authorization.
A lender is looking for a few key things: good credit, debt-service coverage ratio, strong net operating income, and a seasoned borrower with a resume that speaks volumes about his experience. Translated, this means they're looking for someone who will consistently make that monthly payment. Ask yourself, would you loan money to you?
Make a Good Impression
The first thing an underwriter looks for is a clean, well-kept property. The borrower must provide clear photos of the entry, alleys, lots, cell towers (if any), interior doors, long shots of the alley, and two-way street views leading up to the entry. If the photos arent appealing to you, they wont appeal to the underwriter. First impressions are lasting, so make it count.
Make sure the photos do not show stray shopping carts littering the parking lot from the retailer next door, unkempt flower beds, or overflowing trash cans. Clean it up. All of those things are easily remedied with little, if any, cost or time. The lender understands that if you need a rehab loan, things arent going to look like a five-star park; but try to make a good first impression.
Typically, a lender will further require the property financials, including three years of tax returns; a current, year-to-date profit-and-loss statement; and a current rent roll. Lenders understand there are certain one-time deductions like painting all of the buildings one year or replacing security gates, and they will allow for that. They also allow for certain add backs on an annual basis to offset the net operating income. So even if the tax returns dont show what youve netted previously, let a professional loan officer worry about deciphering the financial details and working out the specifics.
Another key piece of information is the rent roll on the subject property. This doesn't need to show each tenants name, but it does need to include the unit number, rental amount and payment status. No hand-written, yellow-pad published scribbles, please.
Although the borrower is required to use his credit score to show hes credit-worthy, the facility income will dictate the rate and term. A well-crafted industry resume goes a long way toward getting that approval stamp on your paperwork, so spend a few minutes illustrating your expertise in the business. Remember, the lender has never met you. He still wants to know who you are and what youve done in the industry. The bank is trusting you with its funds and wants to ensure the handshake on the deal is a solid one.
Getting financing today takes more time and patience, but it is doable. Become familiar with the loan process, and then build an appealing loan package that meets your needs as well as those of your lender.
Anita Huedepohl brings more than 25 years entrepreneurial experience to her current position as owner of Liberty Funding. Shes 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 www.libertynationwide.com .