As we have been navigating through a global pandemic and a financial crisis, the economic landscape continues to evolve. In speaking with industry expert Chris Sonne recently, he cited info from NAREIT that indicates that the self-storage industry has historically outperformed all other types of commercial real estate including apartments, industrial, office, retail and hotels. Chris also cited TREPP, who indicated that self-storage also has one of the lowest loan default rates for commercial real estate. For the last 25 years, self-storage has proven itself by being very resilient, and sometimes called “recession-resistant” during downturns in the economy.
This reputation is drawing the attention of many lenders these days, as the economy has been taking an aggressive hit because of Covid-19. More banks and lending institutions are looking for self-storage lending opportunities because of the historical data on the industry and how it performs in down cycles.
The last major economic crisis was 10 years ago, as we dealt with what is now called the “Great Financial Crisis” (GFC). During that time, money was nearly impossible to obtain for self-storage development or acquisitions. People wanted to get into the business or expand their businesses, but they could not get financing. This created a pent-up demand and once money did become available, it was game on for borrowers.
During that time period of limited or non-existent financing options, the SBA made self-storage eligible for their programs. The SBA allowed the use of the 7(a) and 504 programs for self-storage starting in October 2010. Unfortunately, many banks did not have the SBA experience to make the loans happen and they also didn’t have experience or knowledge of the self-storage industry.
With the right lender, the SBA programs are an excellent way for people to buy, build or expand their self-storage businesses. The 7(a) and the 504 product each have their place and an experienced lender in the self-storage industry will work with you to determine which one is the best product for you and your business. For example, don’t let low rates on certain programs dictate your thought process. Rates are an important factor, but not the deciding factor when trying to determine your best overall option.
The self-storage industry continues to grow. Now is the time to consider moving forward with a self-storage loan, as the SBA will pay the principal and interest on all new loans originated and fully funded by September 25, 2020, for the first six months of the loan*.
If you are in need of a loan that you feel could fit this timeline, contact us as soon as possible so we can work with you to determine if this is the best option for you. Our self-storage loan team at Live Oak Bank can guide you through the process of building, buying or improving a facility using SBA products. Visit https://www.liveoakbank.com/self-storage-loans/ or call 910-202-6933 for more information.
*Please note: this information is accurate and updated as of June 23rd, 2020