Self-Storage Loans, Required Underwriting Guidelines
Maximum Loan To Value – 70% to 75%
Maximum Amortization – 25 years
Minimum. DCR - 1.30x to 1.35x
Minimum Vacancy Reserve – the greater of actual or market vacancy; typically 7% to 15%
Minimum Replacement Reserves - the greater of actual or $0.15 to $0.25 per square foot
Capitalization Rate – use market-driven capitalization rate; typically 9% to 11%
Property Condition and Characteristics
The property should be designed and configured for ease of entry and egress by tenants including access by 18-wheel tractor trailers. The reason for this is most obvious, to deliver the occupants contents. Lenders will look very closely for this when underwriting self-storage loans
Buildings of low quality construction or poor insulating capacity are discouraged. Foundations and driveways should be reinforced concrete (4” - 3,000 psi) with fiber mesh reinforcing.
Property will be perceived as “safe”. Entry to the property will be through an electronic gate with some type of key-pad entry and exit. The entire property will be lighted, especially interior hallways and outside storage, with all common area lighting controlled by timers.
Individual units should have quality hasps and locks. Surveillance cameras, if provided, will be installed at the entrance and exit gates. Lenders want to know that the property and the valuable contents of the individual units are protected while they are underwriting self-storage loans.
The property should have adequate traffic exposure and a desirable Average Daily Traffic (e.g., 15,000 cars per day). Minimum acceptable occupancy (annualized occupancy for properties with seasonal fluctuations) is typically 85%. A stabilized occupancy and operating history preferable.
For a No-Obligation Professional Analysis for Self-Storage Loans please click here.
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