You’ve probably heard that it’s a great time to be a self-storage borrower from lenders, brokers, and others who are active in the debt market. But do the facts on the ground support that? What interest rates and loan structures are really getting delivered? How much capital is there competing for your loan? Let’s look at some real-life examples and fact-based information.
Rates are Very Low & Loan Structures are Borrower-Friendly
2.72% interest rate locked at closing! Earlier this month, Talonvest Capital represented a client on a storage property refinance and delivered a 10-year fixed-rate loan at that low fixed rate. While the loan featured a lower LTV and a correspondingly high debt yield, it is nonetheless an exceptionally low rate. Another loan getting ready to close in just a few days has a 3.14% 10-year fixed interest rate. Additionally, both loans have interest-only payments for the full 10-year loan term! On another assignment, a 5-year fixed rate was locked at application during the fourth quarter at 3.10%. The life company lender informed Talonvest Capital that the same loan would price between 3.05% and 3.10% today. Additionally, bridge loan quotes have been in the LIBOR + 200 to 225 range…with no floor, so the all-in rate is in the low-to-mid 2% range.
More Lenders Are Entering the Storage Lending Space
When more lenders are competing for your business, you’ll find better the loan pricing, terms, and structure become available. Many people believe that lenders are jumping on the self-storage lending train because of the resilience the product has demonstrated during difficult economic circumstances, most recently through the pandemic. But are more lenders getting into storage lending? Our answer is a resounding “yes”. In just the last month, Talonvest Capital had several lengthy calls sharing their decades of storage lending experiences with the Executive Vice President of a large regional bank that just committed to their first storage bridge loan. A similar session was had with investment committee members and the regional lending heads of a large insurance company that is considering adding self-storage to its targeted property types. That was just in the past 30 days! Don’t be surprised when the supply of capital providers for storage debt grows even further.
Projected 2021 Loan Volume is Dramatically Larger Than 2020 Actual Results
Commercial Mortgage Alert, a subscription-based research update on real estate finance and securitization, recently published an article titled “CMBS Lenders Poised for Big 2021 Rebound”. Twenty-six of the primary originators of CMBS loans individually forecast their 2021 volume for the article. In total, the combined volume goals suggest “securitizations will skyrocket this year, by more than 75% from 2020’s depressed level”. Meanwhile, banks and life insurance companies are also expecting to do more volume as they project a rebound in origination volume after pausing activity for at least a portion of last year due to the pandemic.
The combination of historically active storage lenders forecasting a larger loan volume this year, more lenders coming into the market to compete for your loan, very low Treasury and LIBOR rates, and compressing loan spreads are the ingredients for a Borrower’s Market. Simply put, the facts support that it’s a great time to be a storage borrower, so take advantage of the market while it is so good!