Self Storage Loans | Financing Options

Self Storage Loans

January 6, 2023

When it comes to obtaining a loan to purchase a storage property there are many different sources you might be able to turn to based upon your particular scenario. Let’s take a few moments to go over some options below which were discussed first in a recent article found in “Inside Self Storage”:

Banks – Local banks are a great option if you are looking to purchase an existing facility or do ground up construction on a site in your local area under $5 million. Working with a bank you have an established relationship with can often help expedite the process. Most banks have a maximum LTV of 75%.

Credit Unions – This source of funding is typically used for existing, stabilized facilities. Loan terms are similar to banks 7-10 year terms, 25-30 year Amortization period at a max LTV of 75%.

SBA – If you are new to storage, an SBA loan maybe an option you want to check out. SBA loans are partially guaranteed by the government allowing the lenders to loan at higher LTVs and mitigate the risk. Thus, the LTV ratio on an SBA loan maybe as high at 90% allowing those without as much capital and experience to secure financing for their purchase. The trade off is higher upfront fees.

The SBA 504 Loan is a great option for someone with little to no storage experience looking to acquire, build, expand or renovate a storage property.

Commercial Back Mortgage Securities (CMBS) – These loans are combined with other loans and sold as securities in the capital markets. These types of loans are best used for existing, stabilized acquisitions. CMBS loans are attractive because they offer limited to no recourse on the borrower and potential for long term interest only periods.

The downside to the borrower is high upfront fees, burdensome prepayment penalties, inability to lock rates until closing and lack of flexibility post-closing as the loan will be packaged and sold and the borrower is no longer working with the original lender.

Life Insurance Companies – These loans are best utilized for purchases of new, stabilized storage properties in top tier markets at or above $10 million. Similar to CMBS loans, life companies offer long term fixed rate options, interest only periods and limited personal recourse on the borrower except in cases of fraud.

Bridge Lenders – Bridge loans are good options for borrowers purchasing properties that are in lease up and not yet stabilized or have a value-add component such as expansion, rate increases or renovation. These loans “bridge” the gap (1-3 years) between acquisition and stabilization at which point the property can be refinanced into a permanent loan. The rate on these loans is typically a floating rate with acquisition prices starting at $5 million.

Owner Financing – Especially in light of the last year (2022), owner financing has made a popular comeback. The volatility of the market has allowed owners who can, the ability to sell their storage property and collect interest from the borrower until the borrower is ready or able to refinance with a traditional lender.

This is a great option for borrowers with little to no experience or lower capital looking to get into storage. It can also help streamline the financing process and close a deal much sooner.

There are numerous options available to borrowers looking for self storage loans. Reach out to us today if you would like to be connected to a knowledgeable loan officer that specializes in self storage loans.


Check out some of our related content here:

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Libert, Steve. “Easy Money.” Inside Self Storage, Jan. 2023, pp. 26-28.

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