Billy Meyer is managing director of real estate lending at
Seattle-based Columbia Pacific Advisors. Columbia Pacific
Advisors provides short- to intermediate-term debt of
$5 million to $50 million on the full spectrum of cash-flowing
commercial real estate, including self-storage, affordable
housing and senior housing. Reach Meyer at (206) 734-3979
The Self-Storage Niche Is a Deal Generator
Opportunities abound for pursuing these relatively low-risk transactions
By Billy Meyer
E-commerce giant Amazon is a major character driving the national real estate story these days, and the self-storage sector is a major subplot in that narrative. No matter where
you go in Seattle — the company’s headquarters city
— and the surrounding area, you will see self-storage
facilities popping up alongside new apartment buildings and offices.
The same pattern is evident around the country,
as people move for new jobs or other life events, often putting goods in storage. Sleek new self-storage
buildings, many of them multistory, have been built
in large numbers in urban neighborhoods during
the past five years, catering to millennials and older
That translates into demand for financing. Fortunately,
there’s a deep capital pool out there, ranging from
local banks and credit unions to Wall Street conduits and
life insurance companies. Yet, the highly localized nature
of the self-storage market, and the predominance of
smaller operators, means that borrowers’ financing
needs are extremely varied and don’t always meet
the conventional criteria. Private lenders can help fill
that gap with short-term bridge loans for acquisitions,
refinancing or repositioning.
A good bet
Traditional lenders favor self-storage properties for
their steady cash flows and relatively low risk. Some
30 percent of tenants rent for more than two years and
the delinquency rate for securitized self-storage loans
is well below the average for securitized commercial
real estate loans as a whole, according to rating company
DBRS and the Self Storage Association.
The tenant base is as diversified as the populace,
whether it’s a homeowner storing a bed frame or a
boat, or a small business stashing its inventory of novelty socks. Borrowers have the option to turn to private
lenders when they need capital quickly and are willing
to pay higher interest rates for a relatively short term in
exchange for speed and certainty of financing — such
as an owner who needs to pay off construction debt on
a property that isn’t yet fully leased up.
These scenarios could become more common if the
economy goes into recession and conventional financing dries up. Typical interest rates on bridge loans of
10 percent to 12 percent offer investors attractive yields.
Self-storage facilities are no longer limited to rows of
small, dingy lockers. Developers offer cold-storage and
dry-storage facilities, light-controlled spaces for storing
plants, as well as massive spaces to house vehicle fleets.
The boom in new construction of Class A self-storage
facilities puts pressure on smaller operators to compete.
Many are investing in expanding or repositioning their
properties. Owners also are looking to lock in permanent
financing as interest rates rise, and operators large and
small are constantly on the lookout for properties to buy.
A developer in Hawaii, for example, turned to a
nonbank lender for self-storage financing when local banks turned him down. He had leased about 120
abandoned caves on the island of Oahu that were
originally built by the U.S. Navy to store munitions
during World War II. He turned them into self-storage
spaces. Three years ago, he decided to buy the sites
and needed financing.
To finance the acquisition and planned site improvements, the developer borrowed $12 million at
11 percent for one year, with renewal options. The
loan, underwritten at 83 percent loan-to-purchase
and 54 percent loan-to-cost, closed within 30 days.
The property is now valued at about $75 million, ac-
cording to the developer. He has already sold 20 of the
warehouses to a mini-storage company. The developer
is planning to sell the rest of them to construction
companies and private companies that already are using
them to store items, including cars, wine, equipment
and even lava rocks — a valuable commodity in Hawaii.
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