November 2017 Newsletter
When should you start your self-storage construction financing plan?
Financing must be considered early on as an integral part of your self-storage planning and must start before you look for land. You need to understand the various options and their terms. Most people can not close on the land without a mortgage so early on you need to know what the bank requires for a loan commitment and for the closing ( like final approved site plans, reports, complete bids, attorney documentation etc)
What Are the critical factors in a bank loan?
Most people learn many of the banking basic and have a game plan early on but often fail to realize the interest rate is just one of the several factors of a good loan.
An SBA loan may be for you because you only have 15% equity to invest. Or a conventional loan with 25-35% down may make more sense. Just like when renting a self-storage the first question is always what are your rates but that is less than half of the decision making process. Other important factors include: fixed rate vs variable rate, amortization schedule, loan term 5 yr – 10 yr or 25 years? Can carrying cost and other soft costs be included in the loan, how long to close, closing costs, bank track record to close on time, is an unreasonable debt service coverage ratio required, are there overly restrictive prepayment clauses, how will phase two loan work? And the list goes on. Again be an expert and realize the rate is not the first question to ask.
Many borrowers also do not realize how many things have to be done simultaneously to have financing in place in time to close before your option to purchase runs out.
What are the biggest banking mistakes?
1.) Assuming a handshake is all that is needed. I have seen too many people believe they have a solid loan in place and just need to gather a few more documents just to be told the deal has changed or worse the bank is no longer going to lend the money leaving you in the learch within days of the option to purchase time running out. Your loan is never fully approved until you sign on the bottom line but typically the loan starts with the bank reviewing the basics and offering you a written term sheet. If you agree to the terms they will provide you a written commitment for your signature and request a deposit for various bank ordered reports and or an origination more formal agreement.
Then they will continue to the full underwriting and once all the required information is provided and meets the original assumptions the loan closes.
2) Not having construction bids in time. Banks often take 60 days or more to have a closing. The 60 day period starts after they have all the information, including actual construction contracts with pricing broken down in AIA payment form. So this means you need to get your Architect doing the final building, electrical and MEP design during the site plan approval process if you want to close within 60 – 90 days after site plan approval.
3) Not having enough money in the loan due to cost overruns often due to poor plans or bid specifications.
4) Not having carrying cost in the loan or cash on hand for carrying cost so you do not run into financial problems prior to even breaking ground.
As part of our Dynamic Ease Self Storage Development Series, we help our franchise understand the options and prepare accordingly.
If you want to learn more about Storage Authority Franchise there is a wealth of information on our website www.StorageAuhorityFranchise.com Don’t forget to check out “Why Storage Authority” and our blog/newsroom. Then the next step is to apply on our website or email or call Garrett Byrd (Garrett@StorageAuthority.comor Direct 941-928-1354)
There is no doubt that bollard covers by Post Guard are a must on every new self-storage facility. They look better and saves you time & money as you do not have to retouch the paint every year. www.postguard.com
Self Storage Industry News
*A company analysis of data from Yardi Matrix and the US Census Bureau found that about 438 new facilities were delivered during 2015 and 2016 and that 2017 is expected to yield 337 facilities (about 27 million square feet of storage space). The analysis projects between 350 and 362 facilities will be delivered in 2018. The findings are in contrast to other industry estimates alluded to by Jernigan Capital, which in its report states that “some industry professionals have gone on record predicting as many as 900 deliveries nationwide in 2017 alone.”
“The combination of pent-up demand, continued strong population growth in excess of 1 percent per year and increased mobility of families and millennials can be expected to produce orderly absorption of new supply in general
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