Do you remember a time when you could obtain a 10-year fixed rate loan, which would be completely interest only for less than six percent? Do you also recall a time when a lender would provide a loan based on a projected net operating income (NOI) that may never be achieved? Can you believe there was a time when it was not necessary to provide personal recourse to get an 80 percent leveraged construction loan from a bank? Unfortunately, the days of a “borrower’s market” are gone—the lenders, those that are still active, are now calling the shots.
Today, the market has corrected itself to the detriment of those trying to refinance and to the benefit of those with cash in the bank to buy underperforming self-storage properties. Many people took advantage of the loose lending requirements over the past years and consequently there has been a significant amount of new properties added to the storage sector, slowing leasing velocity and in some cases stalling leasing altogether. As you can imagine, with current concerns over inflation, oil prices, looming recession, subprime defaults, and trying to find debt for a performing storage property, it is difficult enough without having a property that has been slow to lease up. This is the predicament many borrowers encounter when they have construction loans or bridge loans that were highly leveraged now coming due and they have not leased up according to their budgets.