Self Storage Real Estate - A View From My Perch I - 08 2008
The first month of 2008 has been beset by significant financial and political “rock and roll.” If you are like me, much of it doesn’t seem to fit into a neat package that helps to clarify what the rest of the year will bring. However, if you will indulge me, I will give you two thoughts on the self storage real estate market that will hopefully provide some perspective for you to consider.
The Credit Crunch:
The subprime residential loan debacle has caused problems in the commercial real estate world as well. It was clear to most everyone involved that the commercial underwriting standards (how lenders value properties and how much they lend) were quite loose by most historic patterns in late 2006 and early 2007. It was a great time to get a real estate loan, rates were low and loan proceeds were high. In the later part of 2007 the rating agencies began to really tighten up on the underwriting. The largest source of funds for commercial mortgages was from Wall Street firms that created commercial mortgage backed securities (CMBS) loans that were repackaged and sold on to investors. In late summer 2007 the underwriters of the loans decided that commercial loans were too generous in terms of loan proceeds and that the values were being overestimated. Sound familiar? At present, the problem is not nearly as serious as the residential situation, but no one is certain what will happen if the credit crisis becomes worse. This situation has also affected values of commercial real estate as cap rates have generally increased by about 1% (say, from 7% to 8%, depending on the area of the country).
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Broker Roundtable: Northeast States March 2008 2008
How are the local lenders for self storage reacting to the so-called “creditcrunch”?
Mendola: The local lenders here in New England are being accommodative to our lending needs. They do not have the same loan portfolio challenges that the larger
national lenders got themselves into. The whole sub-prime event has made everyone cautious, but good borrowers with strong signatures and well-thought out projects have
no problem locally.
McCune: The “credit crunch” is quite real and still has a long way to play out. While the
residential loans have been clobbered, the commercial loans appear to be holding up
well. However, a recession could negatively impact rents and occupancies. Given the
loose underwriting of many recent commercial loans there is certainly a possibility for
the infection to spread. Luckily, self storage has the lowest default rate of any real estate
class and most of the facilities we see are moderately leveraged.
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Market Monitor Articles
Self Storage Real Estate - A View From My Perch I - 08 2008
The first month of 2008 has been beset by significant financial and political “rock and roll.” If you are like me, much of it doesn’t seem to fit into a neat package that helps to clarify what the rest of the year will bring. However, if you will indulge me, I will give you two thoughts on the self storage real estate market that will hopefully provide some perspective for you to consider.
The Credit Crunch:
The subprime residential loan debacle has caused problems in the commercial real estate world as well. It was clear to most everyone involved that the commercial underwriting standards (how lenders value properties and how much they lend) were quite loose by most historic patterns in late 2006 and early 2007. It was a great time to get a real estate loan, rates were low and loan proceeds were high. In the later part of 2007 the rating agencies began to really tighten up on the underwriting. The largest source of funds for commercial mortgages was from Wall Street firms that created commercial mortgage backed securities (CMBS) loans that were repackaged and sold on to investors. In late summer 2007 the underwriters of the loans decided that commercial loans were too generous in terms of loan proceeds and that the values were being overestimated. Sound familiar? At present, the problem is not nearly as serious as the residential situation, but no one is certain what will happen if the credit crisis becomes worse. This situation has also affected values of commercial real estate as cap rates have generally increased by about 1% (say, from 7% to 8%, depending on the area of the country).
Read Full Article
Broker Roundtable: Northeast States March 2008 2008
How are the local lenders for self storage reacting to the so-called “creditcrunch”?
Mendola: The local lenders here in New England are being accommodative to our lending needs. They do not have the same loan portfolio challenges that the larger
national lenders got themselves into. The whole sub-prime event has made everyone cautious, but good borrowers with strong signatures and well-thought out projects have
no problem locally.
McCune: The “credit crunch” is quite real and still has a long way to play out. While the
residential loans have been clobbered, the commercial loans appear to be holding up
well. However, a recession could negatively impact rents and occupancies. Given the
loose underwriting of many recent commercial loans there is certainly a possibility for
the infection to spread. Luckily, self storage has the lowest default rate of any real estate
class and most of the facilities we see are moderately leveraged.
Read Full Article
Read Full Article
Clich here to
view all Market Monitor articles on Self Storage markets and valuation.
