Make-or-Break Time: Preparing a Loan Request Package

Make-or-Break Time: Preparing a Loan Request Package

Inside Self Storage – January 14, 2016

Making a positive contribution to your bottom line can come from many sources, such as implementing better revenue management, offering additional services and retail products, and improving collections, to name just a few. But beyond these income sources, there’s also a crucial make-or-break moment when you submit a property financing request as it will have huge bearing on your net cashflow. When it comes that time, among managing daily activity, you must make your financing a top priority.

A complete, accurate, concise and compelling loan request package can make the difference. Make the decision for the lender easy. Make or break? The decision is in your hands.

Starting 2014 With New Perspectives

As we kick off the New Year, there are three fundamental reasons why now is a great time to consider seeking storage financing:

  1. More lenders have embraced self storage as a preferred property type

  2. Today’s interest rates are still near historic lows, and

  3. Most lenders are more eager to originate new business in 2014 than in past several prior years

Given the ever-changing financing market environment, you may want to expand your horizons beyond your current lenders. Working with a mortgage broker to prepare and market a professionally prepared loan request package allows you to maximize marketing exposure, obtain competitive financing quotes and minimize your efforts in finding potential lending sources.

The Loan Request Package

A well-constructed loan request package presents five primary information categories:

  1. Loan Request Overview

  2. Property Details and Location Attributes

  3. Ownership and Management Qualifications

  4. Property Operating Performance

  5. Competitive Landscape

Loan Request Overview

The overview is the package’s foundation and paints a picture for the lender that entices them to read further and, ultimately, provide you with competitive financing.

In the overview, you’ll want to define the desired type of loan and its terms that form the basis for which you believe is a reasonable request. Be sure to include:

  • Property Overview

  • Requested Loan Amount and Desired Terms

  • Overview of Ownership/Management Credentials

  • Salient Operating Results Which Support the Loan Request

  • Occupancy Highlights and Trends

  • Summary of Existing Debt and Purpose of Seeking a New Loan

Property Details and Location Attributes

In this section, your goal is to make the lender comfortable about the storage property’s attributes and location. Make the impression that it is competitively located with features that will attract and sustain new and existing customers. Photos — especially those taken on a sunny day — also speak a thousand words.

At a minimum, this section should include:

  • Property Address

  • Gross and Net Square Footage

  • Year(s) Built and Year(s) Renovated

  • Total Number of Units (non-climate, climate, parking, other)

  • Construction Attributes (masonry, metal, asphalt vs.concrete driveways, etc.)

  • Security Attributes (fencing, gate access, cameras, door alarms, etc.)

  • On Site Management Office and Applicable Apartment Information

  • Signage

  • Zoning

  • Amenities, Unique Attributes and Competitive Advantages

  • Photos (property layout, office, location, visibility signage, etc.)

Don’t be shy about bragging about your facility! If you are the local market leader, let the prospective lenders know it. Paint a great picture so they can visualize the asset.

You also want to demonstrate your knowledge of your customer base and the property’s demand drivers. Go beyond providing basic demographic information. With modern self-storage software, you can plot where your customers are actually located. This will help impress lenders that you have a good handle on your business model.

In addition, describe the property’s immediate surrounding area, as well as local and regional characteristics. You may also want to address land use and the ability/probability for new competition to arise in your market. Describe potential barriers of entry for new competition that may result from zoning restrictions or local government processes/ordinances. With construction lending gaining momentum in 2014, this will be of increasing concern to lenders.

Ownership and Management Qualifications

Recovering from the recent credit crisis, lenders today place greater focus and emphasis on sponsorship than ever before. Even if you are seeking a non-recourse loan (which uses only the property as loan collateral), your financial strength will be closely scrutinized. Simply put, you need to prove you are a worthy customer.

You can do this through two primary information presentations:

  1. Proving your financial wherewithal and creditworthiness

  2. Describing your real estate operating experience and track record

Be sure to include:

  • Property Ownership Structure and its Principals – you may want to present an organizational chart if the ownership is complex

  • Financial Strength of the Managing and Majority Ownership (subsequent to the loan request submission, be prepared to provide financial statements, tax returns and global cashflows and Schedule of Real Estate Owned)

You will also want to stress your self-storage management success track record and ability to achieve positive operating results. Consider including recent efforts to improve your operations, such as revenue management techniques, website improvements and operational software upgrades/changes. Demonstrate you are on top of managing the property and are fiscally responsible.

For obvious reasons, not disclosing any credit issues up front can be cause for lender concern and the deal may not make it to the closing table. However, I have managed many requests in which borrowers disclosed past credit problems and their subsequent resolutions and these concerns became a non-issue going forward with the loan request process.

Property Operating Performance

The meat and potatoes of your loan request package, this section demonstrates that the property has the historic and future operational ability to sustain the requested financing. This section should include:

  • Year-End Financial Results for the Prior Two Years

  • Trailing 12 Months Income and Expenses (presented monthly)

  • Occupancy Statistics for Past 36 Months

  • Proforma Income and Expense Statements for Next 12 Months

  • Current Summary Gross Potential Income Report

  • Current Tax Bill

You absolutely must present this information in an organized fashion. 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 net operating income amount that they will use to establish a loan amount. If you are acquiring a property, the proforma becomes essential because the expense structure is likely to be modified and the anticipated income may be different based on the owner’s proposed business plan.

Competitive Landscape

Your loan request should demonstrate that you are well positioned among your storage peers. The competition in most markets is generally those facilities located within a three to five mile radius. The lender will want to see what the competition is charging for units sizes similar to those offered at your property. You will need to “shop” your competition to obtain this information. You may want to describe multi-tiered pricing as many operators offer various price points for the same size units. Be sure to provide the lender with explanatory comments on price/quality variations and competitive locations.

Make or Break!

Having structured hundreds, maybe thousands of self-storage loan requests for more than 20 years, I can confidentially proclaim that a well-organized, professional prepared loan request package will result in obtaining more favorable lender responses and ultimately more aggressive terms. Make the right impression at this point and the resulting financing can contribute to improving your cashflow for years to come.

Neal Gussis is a Principal at CCM Commercial Mortgage, a leading mortgage banking firm securing financing for self-storage owners nationwide. He can be reached at 847-922-3750 or