Making a Lender’s Decision Easier: Telling Your Loan Request Story

Making a Lender’s Decision Easier: Telling Your Loan Request Story

As we roll into 2015, the capital markets continue to offer many low-rate loan options to storage property borrowers.  Loan originators and banking officers are eager to lend, however they are still working within tightened regulatory and credit policy environments.  While visiting the local bank and getting a loan based on a virtual handshake is not realistic today, you can make a lender’s job — and their decision of whether to provide you with financing — much easier.

How?  It’s as simple as telling them a story.

Gaining a lender’s attention and obtaining aggressive loan quotes starts with thoroughly organizing and packaging your loan request.  While this package has many features, its goal is to tell the story of your property, operating experience and lending needs.

Most owners start telling their story to their current lender since they already know them and the property, and may have fewer information requirements. However with so many new lending sources now available that weren’t in the market even a few years ago, you may consider expanding your horizons. Further, some owners use mortgage brokers to prepare and market their loan requests, which allows them to maximize marketing effectiveness, minimize their efforts in finding potential lending sources, and improve their ability to obtain a competitive loan quote featuring aggressive interest rates and terms.

A loan package has five essential components:


  1. Loan Request Overview
  2. Property Details and Location Attributes
  3. Ownership and Management Qualifications
  4. Financial Presentation
  5. Competitive Landscape Let’s start telling your story.

Loan Request Overview


The overview lays the foundation for the loan request package.  This is where you paint the big picture for the lender so they are inclined to read further into the story and, more importantly, ultimately provide you with competitive financing.  You want to define the type of loan and loan terms you desire, and the basis for what you believe is a reasonable request. Your overview should include:

  • Property Overview
  • Requested Loan Amount and Desired Terms
  • Overview of Ownership/Management Credentials
  • Salient Operating Results or Pro-Forma Projections (in the case of a construction loan)
  • Occupancy Highlights/Trends or Lease-Up Timing (for a construction loan)
  • Summary of Existing Debt and Purpose of Seeking a New Loan
  • Sources and Uses of Loan Proceeds

Property Details and Location Attributes

This section should assure the lender about the property’s attributes and location. Emphasize that it is competitively located, with features that will attract and sustain new and existing customers.  Add photos too since pictures speak a thousand words (hint: take photos on a sunny day).  For a construction loan, provide renderings, elevations and site plans.  At a minimum, include the following information:


  • Property Address
  • Gross and Net Square Footage
  • Year(s) Built and Renovated
  • Total Number of Units (non-climate, climate, parking, other)
  • Construction Attributes
  • Security Attributes
  • On-Site Management Office and Applicable Apartment Information
  • Signage
  • Zoning
  • Unique Facility Attributes and Competitive Advantages
  • Photos Highlighting Property Layout, Office, Location, Visibility, Signage, etc.


Describe why this location attracts your customer base.  If you are the area’s superior facility, let the lender know it.  Put yourself in the lender’s shoes and ensure you have provided sufficient physical characteristic information for them to visualize the asset and its competitive marketplace position.


Demonstrate you fully understand your customer base and the location’s demand drivers. Don’t simply provide demographic information.  Using modern self storage software, you can actually plot where your customers are located.  This will show lenders you have a good handle on your business.


Describe the property’s immediate surrounding area, as well as local and regional geographic characteristics. You may also want to address land use issues and the ability for new competition to arise nearby. Describe potential barriers of entry for new competitors that may be due to zoning restrictions or local government processes.


For a construction loan, review your site identification process and prove the location’s feasibility.  First, you will need to describe the proposed facility with supporting architectural and civil engineering drawings and plans.  Then you must convincingly explain why the facility can thrive at this location.  For this, a third-party feasibility study is highly recommended unless you have the proven experience to quantify and objectively present the data needed to support additional market supply and provide adequate investment returns based on the proposed development budget.


Ownership and Management Qualifications


Lenders place significant credit decision emphasis on the strength of the ownership team. Prove that you and your business partners are worthy of being in a credit and banking relationship.  The two key elements are: 1) Your financial wherewithal and creditworthiness, and 2) Your experience and track record. Even if you are seeking a non-recourse loan (which solely uses the property as loan collateral), expect your financial strength to be fully underwritten and scrutinized.

Be sure to include:

  • Ownership Structure and Principal Identification (best presented as an organization chart)
  • Overview of Financial Wherewithal of the Managing and Majority Ownership (be prepared to provide personal financial statements and tax returns)
  • A Schedule of Real Estate Owned (supported by the global cashflows of each partner’s real estate investments)
  • Any Major Credit Issues and Related Explanations (these should be disclosed even prior to sending a package to a lender)

Stress your successful track record in managing self storage and other commercial real estate investments, and your ability to achieve positive operating results.  Share what you have done recently to improve property operations, such as revenue management techniques, website improvements and upgrades/changes in operating software. Demonstrate you are on top of managing the property and are fiscally responsible.


As the self-storage industry matures, many owners seek regional or national companies, including the REITs, to manage their facilities.  Owners with one or two stores that are institutional — or near institutional — quality are now relying more than ever on third- party management options.  Third-party managers have advanced greatly beyond their original mom-and-pop ownership structures to today having access to fully staffed call centers, state-of-the art management software, revenue management processes and, most importantly, the ability to stay relevant with high website search engine positioning. Lenders look favorably at these types of third-party management company advantages.


With a construction loan request, you should also describe the site development process. Describe how you intend on obtaining required zoning, permits and entitlements and the timing.  Also layout your plans for managing the construction process and pertinent information about the general contractor’s and builder’s qualifications.


Financial Presentation

This is the package’s meat and potatoes section where you prove the property will have the operational cash flow to sustain the loan.


For an existing property, this section should include:


  • Year-End Financial Results for the Prior Two Years
  • Trailing 12-Month Income and Expenses (presented monthly)
  • Pro-Forma or Budgeted Income and Expense Statements for Next 12 Months
  • Occupancy Statistics for Past 36 Months
  • Current Summary Occupancy Statistics Report
  • Current Tax Bill


Be sure to remove non-cash items such as depreciation, and either remove or explain non-recurring or non-business related expenses.

Ultimately, each lender will establish a (sustainable) net operating income amount which they will use to determine a loan amount.   If you are acquiring a property, the pro-forma is essential because: a) the expense structure will vary given your management approaches/team, and b) the anticipated income may be different given the owner’s proposed business plan.


With a construction loan, be sure to provide:


  • Detail Construction Budget
  • Timeline of Construction and Anticipated Construction Draws
  • Proposed Unit Mix
  • Monthly Pro-Forma Operating Budget Through Lease-Up
  • Operating and Interest Carry Calculations
  • Five-Year Schedule of Income, Expenses and Value Projections


Be realistic and slightly conservative with your timeline for the facility’s completion and stabilization since you want to obtain a loan that is long enough to match the timing. Here is an example of a timeline from inception to stabilization:


Competitive Landscape

Demonstrate that you are well positioned among your peers.  Competition in most markets is typically defined as facilities within a three to five mile radius.   Lenders want to see what competitors are charging for unit sizes similar to those offered at your property.  You may need to “shop” your competition to obtain this information, and provide explanations for potential variations on competitive prices, quality and location.


Making the Decision Easy

Whether you prepare a loan request package yourself or use a mortgage broker, presenting a compelling, organized loan request is the key to lending success. The fuel that builds sustainability and continual real estate growth is the ability to obtain capital at favorable terms.


Make the loan originator’s job easier by handing over the answer key as to why your proposed loan request is not only worthy of their time, but of an aggressive loan quote.  If you effectively tell this story, it may just be the beginning or continuation of a highly valuable lending relationship.




Author: Neal Gussis