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CMBS Loans for Self Storage Facilities

Self-Storage and CMBS Debt: Navigating Refinance Options


In the realm of Self Storage Financing and Investing in Real Estate, owners of self-storage facilities are often faced with the decision of whether to refinance their existing Commercial Mortgage-Backed Securities (CMBS) loans. With the significant increase in property values, those holding CMBS debt might find the current climate ripe for refinancing.


Why Consider Refinancing Now?

The surge in self-storage facility values has resulted in attractive loan-to-value (LTV) ratios for refinancing—unless cash-out is the goal. However, potential defeasance and yield maintenance prepayment penalties are considerations that need careful evaluation.

Exploring Your Refinancing Options:


- 10-Year Fixed Loans: With negligible differences between 10-year and 5-year rates, a 10-year fixed loan emerges as a prudent choice. It offers the dual benefits of locking in current rates and retaining the flexibility to refinance should rates dip. Note that such loans from banks or credit unions are typically recourse.

- Life-Company Loans: As an alternative to CMBS's stringent prepayment terms, life-company loans offer more lenient prepayment structures, such as a 2% penalty in the first two years, reducing to 1% thereafter. These loans can be tailored to borrower needs and may offer nonrecourse options.

- Forward Rate Locks: A unique advantage with life-company refinancing is the forward rate lock, securing today's rates with funding deferred for up to a year or more.


The Upsurge in Self-Storage Demand:

The self-storage industry has witnessed a boom, with revenues soaring to nearly $40 billion in 2021 from $25 billion in 2017. This growth trajectory makes self-storage a lucrative niche for real estate investors, especially in burgeoning population centers.


CMBS Loans for Self-Storage:

CMBS loans stand out for their long-term, fixed-rate, non-recourse financing, catering to a broad investor spectrum. They are particularly beneficial for:


- Property Acquisition: High demand makes it an opportune time to invest in self-storage properties.

- Rate or Term Refinancing: CMBS loans are an excellent substitute for high-interest or variable-rate loans.


- Cash-Out Refinancing: Leveraging built-up equity in your facility for further investment or renovations is a viable strategy with CMBS loans.

CMBS Loan Terms:

CMBS loans are characterized by their flexibility and borrower-friendly terms:

- Loan Size: Starting at $2 million, with no upper limit.

- Loan Terms: Options include 5, 7, and 10-year terms, with interest-only financing for eligible borrowers.

In conclusion, refinancing a self-storage facility with a CMBS loan can be a strategic move under the right circumstances. It's essential to weigh the benefits against potential prepayment penalties and choose a path that aligns with your investment goals and financial situation.

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