| Financing a self-storage acquisition has never been | | | | you’re probably looking at an interest rate of |
| simpler, though it can be time-consuming. | | | | more than 7 percent. |
| Knowing about the loan products available to | | | | The Application Process |
| buyers and understanding the process will help. | | | | When it comes to financing, the application |
| The first step is determining which financing best | | | | process is critical, particularly the timing. |
| suits your needs is to define your investment | | | | Acquisitions are generally time-sensitive with |
| goals. | | | | specific closing dates. Sometimes they’re |
| These days, it’s easier to buy an existing | | | | ties to tax-deferred 1031 exchanges that have |
| facility than to build a new project. This is | | | | strict deadlines. For this reason, it’s |
| especially true for properties that have stabilized | | | | important to provide all information requested by |
| occupancy of 80 percent or higher. You can | | | | the lender in a timely fashion. |
| finance an acquisition at up to 85 percent of the | | | | Lenders don’t ask for more than they need, |
| purchase price with fixed interest rates for 10 | | | | thought it may appear that way. Many buyers |
| years and amortization periods of up to 30 | | | | and even real estate agents don’t realize the |
| years. These terms, coupled with relatively low | | | | requested information is either part of federal |
| interest rates, will help you meet or beat your | | | | regulatory compliance or, in the case of a conduit |
| cash-on-cash return objectives. | | | | loan, part of the loan-securitization process. |
| Long-Term Ownership | | | | Submitting all necessary documents when |
| If your aim is to be a long-term facility owner- | | | | necessary will prevent delays in underwriting |
| either as an operator or investor- and the | | | | process. |
| property is stabilized, you would typically choose a | | | | Following are some items that are traditionally |
| long-term, fixed rate mortgage (let’s say 10 | | | | required. In addition to basic information about |
| years.) If you’re not concerned about cash | | | | the property and purchaser, the lender will order |
| flow in the short term, you may want to go with | | | | an appraisal as well as an engineering and |
| a short amortization period. If you want to | | | | environmental review. |
| maximize cash flow throughout the length of the | | | | -Signed loan application |
| investment, a 30-year amortization is more | | | | -Monthly income statements for the last three |
| appropriate. | | | | years |
| Take a look at the impact of amortization period | | | | -Current rent roll |
| in cash flow. Let’s say you purchase a | | | | -Occupancy history for the last three years |
| facility for 3 million. You secure a loan for 85 | | | | -Tenant-delinquency report |
| percent of the value (2.55 million) at a 5.85 | | | | -Deposit slips and bank statements for last three |
| percent interest rate. If you choose a 20-year | | | | months |
| amortization period, your monthly payments will | | | | -Last insurance-premium notice |
| be $18,049. If you go with a 30-year | | | | -Most recent property-tax bill |
| amortization, your monthly payments will be | | | | -Copy of the management agreement |
| $15,043. That’s a difference of more than | | | | -Site plan |
| $36,000 over the course of a year. | | | | -Copy of the existing title policy |
| Buy and Improve or Flip | | | | -An “as built” survey |
| If your objective is to buy a poorly managed or | | | | -Applicant’s and principals’ tax returns for |
| underdeveloped storage business to turn it around | | | | the previous three years |
| or sell it, choose a short-term bridge loan or a | | | | -Principals’ personal financial statements |
| three- to five-year term loan. This will allow you | | | | -Purchase’s bio and profile |
| to make improvements to the property and | | | | -Copy of the executed purchase agreement |
| increase net operating income before securing a | | | | -Articles of organization (LLC) or incorporation |
| long-term mortgage. | | | | (corporation) |
| A loan for a property below stabilized occupancy | | | | -Executed operating agreement (LLC) |
| (less than 80 percent) is best provided by a local | | | | -Certificate from secretary of state |
| bank with which you already have a business | | | | Get Coordinated |
| relationship. Expect to invest 20 percent to 25 | | | | Once you pull your application together, |
| percent of the purchase price. This type of loan | | | | there’s still a lot to coordinate. Because so |
| is also full recourse; in other words, you’ll be | | | | many parties are involved in an acquisition, it’s |
| personally liable. | | | | important for everyone to work cohesively |
| Interest Rates | | | | toward the same goal: completing the purchase |
| Are interest rates still favorable for a self-storage | | | | and funding the loan as quickly as possible. This |
| acquisition? Yes, especially if you’re looking | | | | harmonization is often best suited for the loan |
| at a 10-year, fixed rate loan. These loans are | | | | broker who works with the buyer. |
| based on the 10-year Treasury yield, which | | | | Now is a great time to finance your self-storage |
| means you can expect a rate of less than 6 | | | | acquisition. Understanding the basic steps will help |
| percent. If you’re using a bridge loan and | | | | the process go smoothly. |
| your lender is using the Prime rate as the index, | | | | |