Hello everyone. I am looking to purchase my first self storage portfolio in PA. I submitted the LOI today, and am awaiting a response. Meanwhile, I need to find a lender! I am looking for 75% LTV with a 30 year amortization, and a term somewhere close to 30 years (not looking to refinance at any point). Purchase price is $3.4M. The current occupancy is 72%.

My Situation:
My income is not very strong at all relative to the purchase price of the property, but the property cash flow has been consistently strong for the past 4 years, and I have a private investor who will provide the down payment. I've called a few lenders I found online, but have not heard back yet. Does anyone know of any lenders that will be able to help me finance this purchase with my situation? Thank you in advance for any help!

-Chris

wyche89

If the seller currently has a mortgage on the property, you may want to consider approaching that bank. If the project is currently debt free, ask the owner or manager where they do their banking. If the current owner has been a customer there for many years, they already know about the facility’s cash flow through their deposit relationship. That institution may also be a possibility. You and your investor have to be prepared for the current reality that it may take 35% to 40% of the purchase price in equity to attract a lender. Would the seller take back some paper? He would have to be in second position, but if you are offering near their asking it may be something that they would consider. If there is additional land, for example, or a side deal that you can make with them to purchase all the personal property in the transaction outside of the property purchase contract that would slightly reduce the real estate purchase price. Just a couple of crazy ideas.

MisterJim444

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The owner does have debt on the property, so holding a second mortgage wouldn't be an option. There is a local bank in the area that I am told is familiar with the property, however. My two obstacles will be these:

1. I don't have any experience.

2. I don't have much income or liquidity.

I'm going to tell the bank that the current management company who has been successfully running the facility is willing to stay in place to continue to profitably manage the business. I'm thinking that I also need to come up with a business plan. I will do that this weekend, and call the bank on Monday to try to combat the experience issue. I also have some advertising ideas. Do you think that is enough to make up for my lack of experience?

My credit is very good (close to 700) without any late payments or delinquent accounts, so that will work in my favor. However, I don't have much personal income or liquidity, and my down payment is coming from a private investor who can show proof of funds if needed. Do you think that will present a problem?

I need to find a way to get this property! lol

Wyche89
Since you have an experienced third party management company in place that has been running the property the experience issue should not be a problem. The bank will be looking mostly at your investor based on the deep pockets theory. Best of luck and keep us all posted.

MisterJim444

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I will. Thanks

Thanks Mister Jim! Just throwing out a silly question here: Not sure how this factors in to the process. But inquiring minds want to know!
If the purchaser is borrowing the money from the investor or if the investor is going in as a partner how will the scenario change? And what is the "mood" of lenders right now? I have heard of many examples of "hoop jumping", dragging things out, in other words stalling just because the lender won't come out and say they don't have any money to lend! Julie

Hi JulieA:

There is a big difference in my opinion about the status of the investor in this case. If the investor’s relationship with Wyche89 is simply writing him a check instead of a true partnership relationship, Wyche89 stands by him self with the bank. If he is going to be a true partner then the bank will look at both. There is no question that getting financing right now can be difficult. You have to expect to get no more than a 60% to 65% loan. Also the underwriting is more difficult and many appraisers seem to be playing the CYA game in writing their appraisals. One of the big questions lenders are asking is: “Who is going to manage this business?” You may have the financial ability to borrow the money to build or buy a project, but unless you can demonstrate the management capability you could be disappointed. This is a great time to consider 3rd party management – especially in the early years. I say that without any prejudice because we do not provide 3rd party management services. I am looking forward to hearing from Neal Gussis of The BSC Group at the EXPO. Neal Gussis is giving a presentation, at 2pm Monday, entitled,"The Capital Markets: What’s on the Horizon for Self-Storage?" There is also a panel discussion about 3rd party management on Tuesday morning at 8 AM. I have to also get a plug in for my session on Feasibility Studies at 10 AM on Monday. See you in Vegas.

MisterJIm444

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Learning Never Ends, But Will Time?

Oh yeah. 3rd party management is the only way to go. I wouldn't even think about managing a facility myself because I have no experience what-so-ever, and I want me self storage investments to be as passive as possible. As far as my investor is concerned, he'll be writing a check at settlement then be paid back at settlement through the seller's proceeds.