There’s no doubt that the lending market has changed in the past 18 months. What that means for business owners, including self-storage facilities, is really no different than what it means for individuals seeking credit; traditional lenders are taking a harder look at assets, loan-to-value ratios, and credit ratings.
If a mini-storage operator needs to refinance a loan, you will most likely find the lending practices of traditional lenders much more tightened—or even shut down. “Many national and larger banks aren’t lending,” says Neal Gussis, a mortgage broker with Beacon Realty Capital in Chicago. For those who are lending, Gussis adds, “Strict new standards might make the deal go south. That’s the world we’re entering into and our new reality.”
More Conservative Financing
To understand where we are now and what’s available in terms of refinancing, Gussis says we have to understand what road brought us to this new world of tighter credit. Gussis says that prior to 2007, a great percentage of loans on self-storage businesses originated with traditional banks. Most of the rest of the loans were done through conduit financing, an option that usually gave 80 percent of loan to value on the property. “As lenders became more aggressive and values continued to rise, that led to a very frothy market,” says Gussis. “That market began to crash in mid-2007 and keeps falling through today.”