19 Jun 2024
During the recent ISS Las Vegas World Expo, we had the opportunity to engage with industry experts, gaining insights into the current self-storage landscape. James speaks with Anna Taylor of Live Oak Bank, focusing on lending criteria for solopreneurs entering the self-storage market. Emphasis on the importance of realistic projections when seeking financing for value-add properties.
James: We are here with Anna from Live Oak Bank. Thank you so much for your time. You guys are one of the busiest booths at the trade show. So to that point, I've had some questions around so many solopreneurs are entering the self-storage space and trying to find value-add locations. What are things you look for when determining whether you want to give them lending when they bring the deal to you guys?
Anna: Right. So everybody wants to find a value-add property. And I think unlike a lot of other lenders, we're okay looking at projections and getting comfortable on something on a pro-forma basis. So it's all about kind of picking apart those projections to say, does this make sense? Does this feel realistic? For example, if somebody is buying a facility and they can show me like, hey, look, this facility, you know, the rental rates are 20% lower than all these other facilities that are in the same market, same quality, and they're saying they're going to raise those rents, that seems, you know, doable to me. If I get somebody that's coming in there and says that they're going to, you know, the rates that they're showing are not even present in the market, or they're going to, you know, quadruple NOI in four months, that's when I start to push back and say, I really don't feel like comfortable underwriting on these projections. Another thing we look for, you know, is expenses. After looking at self-storage profit and losses for eight years, I kind of can see where, you know, typical expense ratios lie. So if I get projections where someone's projecting at like 10% expenses, then I'll know, like, I don't think this person really has a firm grasp on kind of what's happening. And I think people also need to do due diligence on property taxes and insurance, because that's likely going to be higher under your ownership than it was for the seller due to reassessments and then renewing insurance policies.
James: That's an awesome point, Anna. But one thing you mentioned earlier that I want to really focus in on is, what is the actual average market in an area, you know, what are the achieved rates an owner can expect, especially in a re-occupied market, where on the front end, we know the asking rates are more so of a teaser rate, get you in the door, and it's hard to figure out what the achieved rates are when the facility stabilizes for a long-term rental. What have you seen in the market or what do you expect to see in the next couple of quarters?
Anna: Yeah. You know, the new kind of game of these lower rates and then kind of existing tenant rental rate increases, it definitely makes it harder to figure out, like, what do I think when I get someone in there for six months, what are they going to be paying? I think it is more challenging. I think that you can probably do a little bit of mystery shopping or calling managers to see, but I think, you know, extra space and CubeSmart and things like that, it's going to be harder to kind of tease that out. I'm always a big fan of, like, use what resources are available to you, so, like, checking on Radius, you know, if you're going to, like, a consultant, that can kind of suss out the market rates. But I think it's a challenge that everybody is facing in the market, even the, you know, the big dogs, even the REITs.
James: Absolutely. When times get tough, the tough get going, so do your due diligence, people.
Anna: Yeah, absolutely.
James: Thank you, Anna.
