Subscribe to Our Weekly Newsletter
ISS is the most comprehensive source for self-storage news, feature stories, videos and more.
Financing Success: How to Make an Outstanding Self-Storage Loan RequestFinancing Success: How to Make an Outstanding Self-Storage Loan Request
If you’re seeking a loan for a self-storage acquisition, development or refinance, one of your first steps will be to create a compelling application brimming with the right details. Why? It’s what you need to be favored by lenders in today’s tight financial market. Find out what to include in this important package to get the capital you seek.
5 Min Read
While a professional, comprehensive and compelling loan request has always been the key to obtaining optimal financing for a self-storage acquisition, development or refinance, it has become even more critical over the past couple of years. Since the drastic increase in interest rates in 2022 and 2023, funding has become more expensive and scarce. To ensure you can get your hands on that precious, limited lender capital, you must know how to assemble a solid loan application.
This process takes time, but it’ll save you and your prospective lenders considerable effort down the road. A solid package will answer many questions before they’re asked and allow lenders to quickly evaluate your request. While nobody wants a refusal, the next best thing to a quick “yes” is a speedy “no,” as it allows you to efficiently move on to other finance options.
When you present a complete and professional loan request, it shows lenders that you have an in-depth understanding of your self-storage project, market and competitors. It also demonstrates that you understand current lending parameters and can apply them to the specifics of your plan. Presenting a complete and clear request with achievable market-rate terms makes a lender's job much easier, often moving your application to the top of the stack.
The Essentials of a Self-Storage Loan Request
At a minimum, every self-storage loan application should include:
The purpose of the loan (refinance, acquisition, construction, etc.)
The desired loan amount
Key loan terms (length, amortization, fixed or variable rate, recourse or nonrecourse)
Loan metrics (loan-to-value or loan-to-cost, debt-service coverage ratio, debt yield)
A “sources and uses” schedule
Borrower and loan-guarantor information
Property-management information
Property/project details
Historical and projected operating income and expenses
Self-storage market and competition information
Including a “sources and uses” schedule is an excellent way to give the lender a snapshot of how the funds will fit into the overall capital plan for your self-storage project. It’ll show where the required capital (debt and equity) comes from and how it’ll be deployed. For example, a simple schedule for an acquisition might show the requested loan amount and equity invested by the borrower as “sources,” and the purchase price, transaction costs and closing costs as “uses.” Total sources should always equal total uses.
Once the lender understands your requested loan terms, metrics and capital structure, they’ll want to know more about the borrower. Who will be the entity, and what does that organizational structure look like? Identify and include a résumé for each key member or partner responsible for operating or developing the project. It should contain a focus on their experience and expertise in the self-storage industry or commercial real estate. If the borrower will engage a property-management company to oversee the facility, it’s important to include its experience and qualifications as well.
Next, who’ll provide the necessary equity and personal loan guarantees, and what are their financial capabilities? Please note, it is not recommended to include personal financial statements or tax returns in your self-storage loan request. This information should only be transferred securely to potential lenders that show a sincere interest in the opportunity.
As to property information, identify the location through regional and local maps, and describe the property’s physical attributes using high-quality photos. If this is a refinance or acquisition, you’ll also provide operating details including:
Two years and trailing 12 months of historical income and expenses
A 12-month forecast of operating income and expenses
Three years of occupancy history
Current unit-mix schedule showing all sizes and pricing, including total rentable square footage and total gross potential income
Finally, put into context how the facility will compete in the local self-storage market. Discuss competition, rental rates, occupancies, demand factors and potential new supply. These details will demonstrate your knowledge of the industry and help you build credibility.
Additional Requirements for Construction Loans
Beyond the general elements outlined above, a self-storage construction-loan package typically requires the following:
Team qualifications: Résumés or certifications of key personnel involved such as the developer, general contractor, architects and engineer
Feasibility study: A comprehensive assessment of the project's viability, ideally conducted by an independent third party
Detailed construction budget: A breakdown of all project costs including the land acquisition, site preparation, materials, labor and soft costs (e.g., permits, legal fees, interest)
Construction schedule: A timeline of project milestones and completion dates
Project plans: Architectural drawings, including site plans, floor plans, elevations and renderings
Financial projections: A five-year operating forecast, showing monthly income and expenses, with a focus on breakeven point and stabilization
Maximizing Your Chances of Loan Success
Here are some final tips for securing favorable self-storage financing:
Target the right lenders. Find those that specialize in self-storage and align with your specific needs in terms of loan amount, leverage, key terms and personal recourse.
Set realistic expectations. Asking for more than you need may get your request unnecessarily declined. Conduct market research to ensure your terms are competitive and reasonable. The time to negotiate is after a prospective lender shows sincere interest and provides preliminary terms.
Conduct a thorough review. Carefully review your loan package multiple times before submission to identify and address any potential issues.
Seek feedback. Test your loan package with a few lenders to get initial feedback and make necessary adjustments.
Be responsive. Promptly address lender questions and requests for additional information to demonstrate your commitment.
Maintain open communication. Be honest and transparent in your interactions with lenders.
Follow up. Persistently and professionally follow up with lenders, understanding that their timelines may differ from yours.
Here’s one last piece of advice: When seeking self-storage financing, casting a wide net is more important than ever. Capital is tighter than it has been in more than a decade. Soliciting more qualified lenders will greatly increase your odds of obtaining the loan you need and deserve.
Steve Libert is a founding principal at CCM Commercial Mortgage Advisors, a commercial mortgage brokerage that specializes in self-storage financing. Since 1993, he has arranged more than $2.5 billion in financing for developers and owners nationwide. He can be reached at 847.452.2082 or [email protected].
About the Author
You May Also Like
