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

While similar to traditional self-storage in some respects, boat and RV storage has distinct differences that can make financing even more challenging. Understanding demand generators and today's lending parameters can help boat- and RV- storage operators find the financing they need.

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.
Underwriting Standards

Similar to traditional storage underwriting, lenders will always analyze a property’s competitive attributes when considering any boat/RV-storage facility transaction. Their analysis will include the barriers to entry of new developments being built near the property. However, unlike traditional storage facilities, which are more improved and often require stricter municipal approvals, the possibility for new boat/RV-storage competition is often predicated upon the amount of available vacant land in the area.

Any municipal restrictions—zoning or otherwise—that limit competition are important to point out to prospective lenders and will support your financing request. An example of a restriction may be a requirement that any potential new storage property must come before the zoning board to prove sufficient demand for its services. At this hearing, competitors are also allowed to present a counterargument, which is a key advantage in a lender’s eyes.

The level of facility improvements will also be important in determining the lender’s willingness to finance a property. Given their general lack of large-scale improvements at boat/RV-storage facilities, lenders often look at the product as land, which, in today’s lending markets, is not widely financeable without a high percentage of equity. Improvements such as fencing, permanent rental offices, security systems and covered areas improve the property’s value and can increase the available leverage.

The level of improvement is a Catch-22, and you must guard against over improvement. Traditional storage facilities often have units and parking spots that compete with specialized boat/RV-storage properties. However, if you build units specifically for boat and RV storage without smaller, traditional self-storage units, the resulting unit mix will not fit the expected self-storage lending standard. Boat and RV units are larger, deeper and higher than traditional storage sizes; this can lead to obsolescence if there is insufficient perceived demand by intended users.

Lenders will not recognize this level of improvement as creating value, and instead will only make these properties less financeable. An example of a more financeable alternative to large individual units would be a warehouse building that provides multiple indoor storage spaces; this is less specialized from a lender’s point of view.
Tell and Sell Your Story

All things considered, if you’ve found lenders unfamiliar with traditional self-storage financing, the niche subset of boat and RV storage is likely to throw them for an even bigger loop. As a result, there are even fewer lenders willing to finance these properties. Those who are active will require a strong real estate story with an excellent location and strong demand generator.

The bottom line for today’s boat/RV-storage lending is not all that different from traditional self-storage: limited financing availability at higher levels of equity, higher interest rates and a shorter amortization term. While the current environment is difficult, it’s not all bad news, as new lending sources continue to re-enter the market almost daily. This doesn’t suggest lending terms from past years will return anytime soon; but what you could likely expect is the availability of financing for non-core property types including boat and RV storage should continue to improve during the coming months.
Noel Cain is a senior vice president at The BSC Group, where he provides mortgage-brokerage and financial-consulting solutions to commercial real estate owners nationwide. He can be reached at 847.778.4661; e-mail [email protected]; visit

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