Last month at the ISS World Expo, we caught up with Anna Taylor of Live Oak Bank, who shared her thoughts on the rising federal rates, how this can be an opportunity for medium to small self-storage businesses, and the importance of maximizing the value of your facility.
James: All right, Anna, thank you so much for your time today. We've been seeing a lot of waves in the self-storage market with federal rate hikes keeping a lot of deals from getting over the goal line because it's difficult to secure funding. But then ironically, on the highest levels of self-storage, we're seeing full steam ahead. Extra space and life are set to merge, and a lot of high-level developers are still very active. What are you seeing from the lending market on any level?
Anna: Yeah. So I think that it is challenging. The Fed increasing interest rates at such a clip has made it challenging for sure. But I think with that challenge, there's opportunity for some of the medium to smaller players to think about, well, is it ideal that interest rates are so high? No. But what does that mean for you if you have a project? Number one, I would say on the construction side, you're going to have less people competing against you. Because if you think back to 2017 when interest rates were at super low levels, the problem wasn't getting financing. The problem was oversupply and going into a market where other people had the same great idea that you did to add self-storage. So I think what's good is that it prevents too many people from moving in. So if you are in a good market with strong rental rates, you know no one else is building. If it pencils at these higher numbers, higher interest rates, then move forward. We can support you as a lender with lots of interest only in working capital to help kind of ride out when rates are high. And then as they come back down, your facility will stabilize, and you can be in a really good position in two to three years.
James: That I think is great advice and great perspective given the current situation. For those who can't really get financing for a new project, what are some advice for self-storage operators to sort of maximize their time and reinvest into their own facility to optimize it? Some advice that you have published and we've seen. Any advice for self-storage operators?
Anna: Yeah, for sure. I think you always have to think about how you appear to a lender. So if you own a business, everything that you can do to raise your revenue while keeping expenses flat is really important. I like to see facility owners that are consistently building NOI year over year. Those are strong operators. If I see someone that has like a revenue dip or their margins are slipping a bit, that’s someone that I'm not as excited to finance. So if you're kind of biding your time, do everything you can to maximize the value of your facility by not only raising revenue but also taking a look at your expenses. Are there processes that you can automate to save money, etc.?
James: Wow, thank you so much. That's been very helpful. I think that a lot of our audience found it helpful as well. Thank you so much for your time, Anna.
Anna: Yeah, absolutely. Thank you.
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