Section 12 • Finance Rates for both programs vary depending on a number of
factors. As with many federal programs, SBA loans are docu- ment heavy, and thus the processing, underwriting, approval, and closing on these loans can take longer than other programs. When applying, seek a lender that is Preferred Lender Program (PLP) certified, allowing them to approve loans on behalf of the association, which can speed up the process. Contact a district SBA office to learn which lenders are PLP certified. SBA financ- ing has been positive for the self-storage industry overall, act- ing as another medium through which capital and liquidity are injected into the market.
Construction And Land Loans Commercial real estate construction in 2015 built on momen- tum from 2014, following several years of minimal new develop- ment in the wake of the financial crisis. Several market experts have predicted that the nonresidential construction sector will continue to expand, with the Associated Builders and Contrac- tors (ABC) projecting 7 percent nominal growth in 2016.
While new development has and will continue to present
self-storage owners with opportunities, employment growth in the construction saw an increase in jobs in October that fol- lowed several months of minimal job growth. This slow growth can create a gap in skilled workers in the industry as compared with the potential demand. A lack of skilled workers can drive wages up and can increase project completion time and cost. On the other hand, costs for construction materials were down by 1.2 percent year over year in August 2015. Still, lenders are selective when it comes to construction loans, preferring to lend to well-capitalized borrowers with healthy past development experience.
For a developer with a viable project in a high-demand trade
area, the most likely lending partner is a local or regional bank willing to build a relationship and partner with the sponsor. Construction loans are riskier than other debt products by na- ture, because there is no cash flow during the construction and lease-up period. Full recourse with a completion guarantee is typical of construction financing, at least until the Certificate of Occupancy is obtained, after which a burn down to limited or partial recourse may be allowed.
Currently, conventional lenders are advancing up to 75 per-
cent LTC at attractive fixed or floating rates, with “break-even” interest carry often built in. Other specialized self-storage lend- ers recognize the need for new product in select markets and may be willing to offer up to 90 percent of construction costs on a non-recourse basis, under a participating debt structure for qualified projects. Alternatively, borrowers may find higher leverage available with SBA financing.
When negotiating a construction loan, it is critical to struc-
ture an interest-only period that mirrors the timeline required to bring the property to break-even occupancy. In addition, be
128 Self-Storage Almanac 2016
sure to factor the necessary interest carry into the budget. These structural features help minimize the stress associated with the financing. The key element in a successful construction financ- ing request is planning. By budgeting construction costs and development timeframes carefully, it will assist in identifying the appropriate loan structure and help to ensure the success of the project.
The underwriting approach for bridge lending is
relatively aggressive, and the loans are often sized using in-place cash flow. If a borrower’s pro forma projections are prudent and viable, lenders will sometimes give additional credit to these numbers.
Bridge Loans For Short-Term Financing Bridge loans can be a strong financing alternative for transition- al or stabilizing assets, as well as when a sale or refinance is likely in the near term. Bridge loans can provide funds for even more atypical scenarios, such as a distressed recapitalization. These loans give borrowers short term access to loan proceeds with a horizon generally no longer than three years.
For borrower’s seeking this option, it is important to recog-
nize that a lender in a bridge financing transaction will be look- ing for a clear “exit strategy.” Lenders in this space will want to ensure that the bridge loan will be retired through either a sale or refinance of the asset during the loan term. Bridge loans are generally originated on a fixed- or floating-rate basis for a term of 12 to 36 months, sometimes with one-year extensions at lender option. The extension options can typically be exercised for a fee as long as the property is performing according to the terms of the loan agreement.
These loans often feature flexible prepayments, and non-re-
course bridge loans are available in the market today, again, sub- ject to asset performance and lender discretion. Rates for bridge loans vary depending on the loan structure and perceived risk of the transaction, typically falling in the range of 3 percent to 10 percent. Lenders will often collect 1 percent at closing and 1 per- cent at repayment, but this is subject to a number of variables and is often negotiable.
The underwriting approach for bridge lending is relatively
aggressive, and the loans are often sized using in-place cash flow. If a borrower’s pro forma projections are prudent and vi- able, lenders will sometimes give additional credit to these numbers. Often, loan-to-cost (LTC) is the ultimate constraint on the amount of proceeds. For example, if a distressed self-storage property were purchased at a discount to true value, proceeds will be constrained by 80 percent of that lower cost, regardless of the property’s in-place cash flow.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140 |
Page 141 |
Page 142 |
Page 143 |
Page 144 |
Page 145 |
Page 146 |
Page 147 |
Page 148 |
Page 149 |
Page 150 |
Page 151 |
Page 152
