Submitted to Investment Real Estate by Tom Sherlock at Talonvest Capital, Inc.
Ralph Waldo Emerson was quoted as saying “money often costs too much” …and he isn’t the last one to say that! As owners of self storage facilities know, real estate is a capital-intensive business and getting a loan is a common part of owning a storage property. Owners of all types of commercial real estate, especially storage because of its specialization, have two primary choices when it comes to financing; either handle the process and negotiations yourself, or work with a professional mortgage broker. The experienced storage operators typically hire a professional and the reasons are simple – it saves time and money! The best-in-class storage brokers deliver capital market knowledge, decades of financing experience, and deep relationships with a broad spectrum of lenders to the self storage industry.
Capital Market Knowledge.
So many financial institutions are lending money into the storage space. Naturally banks, ranging from the local community bank to the regional firm to national and money center banks, are financing self storage. That creates a lot of optionality. Yet, it’s the tip of the iceberg when it comes to lender options. Insurance companies lend on self storage…and so do CMBS (Commercial Mortgage-Backed Securities) lenders…so do debt funds…so do credit companies. The supply of capital is plentiful now and that’s good for borrowers, and the better news is that it’s not only the lenders for perm loans (the 5-10-year loans secured by existing, cash flowing properties with stabilized occupancy) who are hungry for more storage business. Construction lenders are still seeking quality lending opportunities, especially with experienced developers building in supply constrained markets. And, the bridge loan market may have more capital than ever before with the creation of all the new debt funds. Storage owners have a lot of options and the larger, experienced owner-operators recognize that it takes a financial professional working full time in the capital markets to have reach into all these options.
Self Storage Financing Experience.
Mike Trout is one of the greatest baseball players alive and Tom Brady is considered one of the greatest quarterbacks of all time. But what would happen if Brady was covering center field at Angel Stadium or Trout was calling signals behind the Patriots’ offensive line? We’ll never know for sure, but their greatness would likely disappear when put into a different arena. So, what’s the point of the sports analogy? Simple, self storage has unique operating characteristics and the financing of storage properties needs to reflect and respect that. A fantastic mortgage broker doing lots of office and retail properties may be the Mike Trout of those property types, but that broker isn’t playing the same game when it comes to financing self storage properties. Be smart, if you’re going to hire a professional, get a company experienced in capitalizing self storage properties…the more experience, the better. That experienced broker will know the areas of a construction, bridge or perm loan that you can and should negotiate like recourse (guaranty), prepayment flexibility, cash management language, operating covenants, interest only payment periods, etc. Equally important, they know where the potential landmines are hidden.
Expansive, Deep Relationships.
Knowing the right sources of capital for any assignment matters, having the experience to negotiate the best terms and structure for the borrower matters, and if the financing ultimately doesn’t close, it was all a waste. Trust and deliverability are key to the successful consummation of the financing process. As we like to say, “execution matters”. As a self storage borrower, you should leverage your storage broker’s relationships…and more relationships equals more options/solutions for you. While breadth of relationships has value, the depth of those relationships is crucial. Think about it, if you’re facing a tough challenge, do you go see an acquaintance (i.e. the superficial relationship) or do you talk with your longest tenured best friend (i.e. the deep relationship)? It works the same way with financing, because problems or issues arise…almost always. There are so many parties involved when getting a new self storage loan – the lender, the credit department, the appraiser, the attorneys, property insurers, title and survey, environmental reports, engineering reports, and more. At each step issues can arise, and when they do who do you want working to solve it? Simply put, the deeper a mortgage broker’s relationship is with the capital provider, the greater probability the execution of your loan will be efficient and the ‘issues’ will get resolved.
Financing a storage property can be challenging. An experienced mortgage broker will help you with the economics, keeping the loan dollars from “costing too much”, while ensuring your loan process and execution is as smooth as possible. The best self storage brokers leverage their relationships on your behalf because they’ve heard the saying “the only person who sticks closer to you in adversity than a friend is a creditor”. If you want to learn more about financing your storage property, visit the Talonvest Capital website at www.talonvest.com, email our team at [email protected] or call 949-251-9900 and ask for one of the self storage experts in the firm.
About the Author:
Tom Sherlock is a Co-Founder Principal of Talonvest Capital, Inc. and has been actively involved in commercial real estate finance since 1985. His experiences include leading the brokerage-advisory business at a prior firm, heading the acquisitions team making JV equity investments at an investment management firm, and being a top producing senior lending officer with a national bank making construction-bridge-perm loans. Tom has been involved in capitalizing well over $10 billion of commercial real estate transactions during his career. In addition, he is an adjunct professor at University of California – Irvine where he teaches the capstone real estate class for MBA students at the Paul Merage School of Business.