Self-storage owners may consider refinancing their commercial real estate assets to take advantage of lower interest rates, shorten the term length, reduce monthly mortgage payments, or free up equity. 

Refinancing a self-storage property can be complex, but it can pay off in the long run with lower interest rates, better terms, and increased cash flow. This guide provides six steps for self-storage owners to follow to navigate the self storage refinance process.

Refinancing Your Self-Storage Property: 6 Steps

1. Evaluate Your Goals

First, you’ve got to clearly understand your “why”: Why do you want or need to refinance? Your answer will guide you throughout the entire process — from selecting a lender to loan type. Are you refinancing to get lower monthly payments? Are you getting a refi to push a balloon payment further down the road? Or, are you planning to take equity out of your self-storage property?

2. Gather Your Documents

Loans require documents — and not just a handful. You’ll need to gather all relevant information about your property and how it’s run. These can include:

• Current outstanding loan balance

• Rent rolls

• Profit & loss (P&L) statements from the last three years

• Schedule of real estate owned (SREO)

Of course, every lender’s requirements are going to be different. This can be a pain, but think of this step as stepping back to take a good, thorough look at your self-storage property — even if the lender doesn’t want every single document, it’s to your investment’s advantage if you have a 360-degree view of its strengths and weaknesses.

Note that you will not need an appraisal at this point — but it will be very helpful to have a good idea of your self-storage property’s market value. If you need guidance, consider using a broker opinion of value, or BOV. As loan maximums are typically limited by a loan-to-value ratio, understanding the value side can be immensely helpful.

3. Get Your Property Ready

When you’re taking a new loan, that means a lender will be closely looking at your property, assessing its value, and providing you with terms based on its strengths and weaknesses. This is a great time to start eliminating those weaknesses.

Do you have some self-storage units that are leaking? Fix them and improve your property value.

Thinking about adding some space for boat or RV storage? If it would add value, do it.

Of course, you won’t always have the money on hand to do everything you want, but the more you can address, the better the loan terms you’ll receive.

4. Start Talking to Lenders

Time to start talking to (and expanding) your network by reaching out to any lenders. You may be tempted to go with the same lender you’ve used in the past, but I’d strongly recommend shopping around your deal to others as well. After all, your property isn’t the same today as it was when you got your previous loan — why should you limit yourself to the same options?

Of course, it can be a bit exhausting to talk to another lender — let alone five or six. That usually means five or six different loan applications, five or six different sets of requirements, and so on. 

The Janover marketplace has revolutionized this — we shop your deal to hundreds of lenders, sending you multiple quotes to compare. Just take a minute and complete the form below.

5. Apply for Your Loan

After you’ve gotten the refinancing quote that best meets your needs, it’s time to apply.

Submit your loan application and provide the necessary financial information and documentation to the lender. The lender will then review the information and make a decision on your loan. They may require additional documentation, plus they will likely need to schedule a property appraisal at this point.

6. Close the Loan

Once everything is finalized and the loan is approved, sign the loan documents and close the loan. Your new mortgage payments will begin according to the terms of your refinancing agreement.

Types of Multifamily Refinance Loans

There are a number of different loan options for your self-storage refinance.

Bank Loans

Bank loans are among the most frequently used refinancing options for self-storage facilities. Provided by banks and credit unions, these financing instruments have little in common, with terms varying widely from lender to lender. That said, bank loan amounts typically start far lower than CMBS or life company loans, though costs may be higher. No two are the same, so it really pays to shop around.

Life Company Loans

Life company loans — that is, loans provided by life insurance companies — are an option for self-storage refinancing, but they admittedly are uncommon. Life company loans are typically limited to strong assets in large metros: Think Class A properties in primary markets.

Life company loans can be either fixed or floating rate, and are typically used for refinancing, acquisition, and rehabilitation. While terms vary, interest rates and leverage are generally lower than most other financing types.

SBA Loans

Loans backed by the Small Business Administration can be used for refinancing a self-storage property. There are two programs that offer financing, outlined below.

SBA 7(a) Loans

The SBA’s most popular loan program, the 7(a), can be used to refinance a self-storage facility — and even acquire or develop one. Interest rates are tied to the WSJ Prime, and loan terms can extend up to 25 years. In terms of drawbacks, the maximum loan amount for an SBA 7(a) loan is $5 million.

SBA 504 Loans

SBA’s 504 loan can also be used to refinance a self-storage property. These loans are less expensive than 7(a) loans, but they are slower to execute. Maximum loan amounts typically range up to $15 million, and the financing can only be used for the property itself — working capital for a self-storage business would fall outside the loan’s allowed uses.

CMBS Loans

Commercial mortgage-backed securities (CMBS) loans can be used for self-storage refinancing in a similar way to other commercial property types.These loans are typically offered by large financial institutions that pool multiple loans together and sell them to investors as securities.

One major advantage of CMBS loans is that they generally allow cash-out refinancing options, which allow borrowers to take out additional funds beyond the amount needed to pay off the existing loan. This cash-out option can be attractive to self-storage property owners who want to use the additional funds for property improvements or even other investments.

In terms of drawbacks, it's worth noting that CMBS loans can be more complex and are nearly all partially amortizing. Most CMBS financing options also include a defeasance prepayment penalty, which can be notoriously difficult to handle should you choose to pay a loan down early. 

Some Useful Tools

Current Rates

The table below is updated daily to provide up-to-date index rates.

Commercial Mortgage Calculator

Curious what your monthly mortgage payments could be? Input your figures into our calculator below.

Loan-to-Value Calculator

Use the calculator below to determine the loan-to-value ratio of your desired mortgage with your self-storage property’s value.

Conclusion

With rates continuing to climb, it makes sense to reassess your current financing. If it isn’t working for you, there are many options to consider. If you have a balloon payment coming due or a loan with a floating rate, it doesn’t have to be a headache to refinance.

Get a free quote by popping your details in the form below.