Financing Self-Storage
Which lender should you select?
Read on to find your best fit.
Lenders are hungry to add Self-Storage assets to their portfolios these days. If you are acquiring a self-storage facility or refinancing, here are details to help determine which type of lender is the best fit for you and your business.
It’s worthwhile to explore options beyond just your local bank or credit union. Navigating the types of lenders and then choosing the right one lending partner can be simplified with some professional guidance.
At Triple Net Lending, we source 3 main types of lenders for our clients:
1) Credit unions and regional banks 2) Life insurance lenders 3) Conduit lenders
We start with the needs and goals of the client, asset location, and operational/financial performance. Then, in conjunction with the client we ultimately determine which one lending partner is the best fit.
Understanding the variables for each type of lender is a great place to start and below is a detailed overview of the 3 types of lenders:
Credit Unions and Regional Banks
Loan Amount:
$1,000,000 - $50,000,000
Terms:
5 and 7-year fixed rate (10-year fixed in rare cases)
Amortization:
Typically, 25-years
Markets:
Asset or borrower (sometimes both) need to be located inside of the credit union or bank’s geographical lending footprint.
LTV:
Up to 75%; “A” quality assets may qualify for 80%
Interest Rates:
Fixed rates for the life of the loan. Interest-only typically only available with construction loans. The loan pricing is usually based on the WSJ Prime Rate or LIBOR. Pricing varies based on a variety of factors so please call with specific deal information for exact rates. Current market rates could be in the high 3’s for “A” quality transactions to mid 4’s for others depending on quality and location.
Rate Lock:
Some credit unions/banks offer rate protection upon the borrower signing the loan application for 60-90 days.
Prepayment:
Step down prepayment such as 3%,2%,1%,0%,0% for a 5-year loan (i.e. 3% of the loan balance if paid off in year 1 and no prepayment in years 4 and 5). No prepayment loans are available in rare cases and can sometimes be negotiated.
Lender fees:
1% lender origination fee is standard. Third party expenses (appraisal, Phase I, PCR) and legal fees. Generally, a 1-2% good faith deposit to be refunded at closing and paid at the execution of application.
Recourse:
Full recourse is standard.
Process:
The lender will issue an application with full terms upfront and generally close the loan within 45-60 days. Mortgage broker will work to create an extensive credit package to be submitted for approval. Approval occurs at the time 3rd parties are returned or before contingent upon satisfactory 3rd parties.
Broker Thoughts:
Banks and Credit Unions will generally have the most flexibility and the mortgage broker may be able to structure a loan specific to an individual borrower’s needs. Since credit unions and banks are offsetting customer deposits with funding loans, one specific lender’s appetite and their aggressiveness to win loans can change constantly. Therefore, a competent mortgage broker can add value and find the best loan terms at any given moment in time.
Life Insurance Lenders:
Loan Amount:
$2,000,000 - $300,000,000
Terms:
10, 15 or 20-year fixed rate
Amortization:
Typically, 25-years
Markets:
All markets in the USA with a preference on “A” to “B” quality assets. Smaller insurance companies will go to secondary markets.
LTV:
Up to 65%; Central Business Districts assets could be considered at 70%.
Interest Rates:
Fixed rates for the life of the loan with interest-only available on case-by-case basis. The loan pricing will be based on a spread over the 10-year Treasury. Pricing varies based on a variety of factors so please call with specific deal information for exact rates. Current market rates could be in the low to mid 3’s for “A” quality transactions.
Rate Lock:
At application. The spread will be held for 60-75 days.
Prepayment:
Yield Maintenance; some lenders will offer flexibility for an increase in the spread.
Lender fees:
No lender origination fee. Third party expenses (appraisal, Phase I, PCR), site visit and legal fees. Generally, a 1-2% good faith deposit to be refunded at closing and paid at the execution of application.
Non-recourse with standard carve-outs.
Process:
The lender will issue an application with full terms upfront and generally close the loan within 45-60 days. Mortgage broker will work to create an extensive credit package to be submitted for approval. Approval occurs at the time 3rd parties are returned.
Broker Thoughts:
This lender will look to maximize loan term offering 10+ years and in some cases up to 20 -25 years. They usually stick to a maximum of 65% leverage but also like to settle at 60% and below. If they want to win a deal, they will generally be the rate leader. They service the deal all in-house with the assistance of the correspondent mortgage broker. The loan will not have any loan covenants as long as the debt service continues to be paid; very advantageous. Typically structured as non-recourse loans which provide limited borrower exposure in the case of a default.
Conduit Lenders:
Loan Amount:
$2,000,000 - $100,000,000
Terms:
5, 7 or 10-year fixed rate
Amortization:
Typically, 30-year, however, partial and full-term interest only is available.
Markets:
All markets in the USA with a preference on “A” to “B” quality assets. Will go to secondary and tertiary markets.
LTV:
Up to 75%
Interest Rates:
Fixed rates for the life of the loan with interest-only available on case-by-case basis. The loan pricing will be based on a spread over the 10-year swap rate. Pricing varies based on a variety of factors so please call with specific deal information for exact rates. Current market rates range from the low 3’s to low 4’s.
Rate Lock:
At closing. The spread will be held for 60-75 days.
Prepayment:
Defeasance or Yield Maintenance
Lender fees:
No lender origination fee. Third party expenses (appraisal, Phase I, PCR), site visit and legal fees.
Non-recourse with standard carve-outs.
Process:
The lender will issue an application with full terms upfront and generally close the loan within 45 days. Committee approval will be based on the full underwrite and analysis by credit team with the third parties in hand.
Broker Thoughts:
This lender will look to maximize leverage based on an underwritten debt yield after analyzing historical financial statements (typically three years stabilized). They have the ability to maximize your cash flow with some interest-only payments for the first 1-3 years and a 30-year amortization thereafter. Cash flow with a 30-year amortization can be significantly better than a 20-25-year amortization. Typically structured as non-recourse loans which provide limited borrower exposure in the case of a default.
