Before making a formal application for commercial construction financing for a self storage, or even before you start planning out a potential self storage build, there are few key financing challenges that you may be faced with and should try to avoid as much as possible in order to get your project properly funded.

While each project can have its own unique challenges, here are some of the more common ones I come across with the self storage construction financing requests we work on.

The first main challenge that we see is when the property owner or builder does not start with the end in mind.

What I mean by this is that one of the challenges of getting a construction loan arranged for self storage projects is getting a prospective lender comfortable with the exit strategy that will be in place to repay the construction loan at the completion of work.

The exit plan or take out loan is going to depend on the borrower’s ability to qualify for a long term commercial mortgage, which will require cash flow for debt servicing that will not be established until well after the project is complete. And while projections can clearly slow enough cash flow to meet a lender’s debt servicing requirements, they cannot guarantee a lender when sufficient cash will be generated on a monthly basis to cover off the costs of a construction take out mortgage.

A second challenge common to a lot of projects is the equity available in the land to secure the lender.

While the finished property may have considerable equity, the lender advances against the current value of the land the the value of the improvements to the land as they are being made.

Because self storage properties are typically in more rural areas, or in areas where the land value can justify the use for self storage, there may not be very much equity in the land to provide security to the lender during the construction draw period which can result in the borrower putting in a considerable amount of their own cash either to cover off the initial construction work, or as a percentage of each proposed draw.

The third major challenge is that self storage is very much a niche market when it comes to construction loans, so its going to be important to be focusing in on individual lenders or lender groups that work in the self storage industry and make construction loans for similar projects.

It can be easy to waste considerable time with the wrong lender where there is very little if any chance of getting the financing you’re looking for.

In many cases, self storage construction is financed through sub prime lenders or private lenders that have a higher level of specialized knowledge for funding these types of projects as compared to many of the banks and other institutional lenders.

One of the best ways to determine what lender or lenders are both willing and capable of funding your self storage project is to work with a construction mortgage broker with the experience and track record necessary to place these types of deals.

If you are planning out a self storage project, or are in the middle of one, and require a construction loan, I suggest that you give me a call so I can go over your requirements and provide relevant construction financing options for your consideration.

Click Here To Speak With Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Self Storage Construction Mortgage Options

The post Self Storage Construction Loan first appeared on Ontario Construction Loans And Mortgage Financing.

Today we are going to be going over some of the major challenges that can occur when attempting to arrange construction financing for a self storage facility.

The first major challenge that comes to mind is the demonstration of debt servicing by the applicant to a lender.

Because there is no cash flow at the beginning of construction and projections can be subject to considerable variation, it can be difficult to establish what the available cash flow to service debt is going to be in there early part of the mortgage term.

Self storage facilities typically do not have a lot of presales and bookings prior to opening so getting a lender comfortable on the first year cash flow can definitely be a challenge.

The real issue here the exit strategy available for the construction financing source.

If debt servicing cannot be properly qualified with a long term take out lender, then its going to be difficult to get the construction loan in place to start the provide.

Another major challenge is that self storage units are typically built in more rural areas, or developing areas that are near to established neighborhoods.

Part of the reason for this is that the land is going to be cheaper and because a considerable amount of land is going to be required the related capital cost is going to be important.

The related financing challenge is that the value of the land contributing to the construction lender’s security is going to be marginal which will require the borrower to invest a higher percentage of their own funds at potentially each stage of construction in order to have sufficient equity in the project at any point in time to secure the construction financing source.

A third major challenge revolves around the lenders that will be interested in doing this type of financing.

For the most part, self storage construction financing is very much a niche market so its going to be important to only be concentrating on the lenders that understand the market and regularly advance funds into the market for this application.

If you target commercial lenders at large, you run the risk of going through an application process and incurring costs for appraisal, environmental, accounting, and so on, and not getting approved or funded in the end. Commercial mortgage lenders, especially banks and institutional lenders, can be notorious for putting you through their whole application process even though there may be a very low probability that they can fund the deal.

So targeting the right lender or lenders from the outset is going to be very important to keep your project on track and keep your application costs down.

If you have a self storage construction project that requires financing, I suggest that you give me a call so we can go over your situation together and discuss different construction financing options that may be available to you.

Click Here To Speak Directly With Construction Mortgage Broker Joe Walsh

The post Construction Financing For Self Storage first appeared on Ontario Construction Loans And Mortgage Financing.

To Commercial construction financing in place, there has to be a way to pay it back.

And in situations where the property to be constructed will be retained long term by the property owner, an exit strategy will need to be put into place that is satisfactory for the construction lender.

If the constructed property is owned by a company or group of companies with established cash flow, then a standard take out mortgage will likely be arranged with a bank or institutional lender that is interested in the deal.

The construction lender may even require this future take out mortgage to be committed to by the lender prior to construction so that the construction lender has confidence in the borrower’s ability to qualify for a timely take out.

This would constitute two step or stage construction financing whereby in order to get the funds in place to complete construction, the long term financing must also be arranged as well.

But what if the company that requires the construction financing is not well established or cannot provide the historical debt servicing capacity that a bank or institutional lender will require?

In this case, the exit strategy for the construction lender will require a commitment from an equity lender that is prepared to pay out the construction lender based on providing financing against the completed project and potentially other properties offered as security, or cash investment, if there is not sufficient market value equity in the completed project to support an equity based loan.

The rationale here is that an equity based loan for one or two years can provide the operating company and/or holding company time to establish cash flow for debt service so that a long term commercial mortgage can be secured at the end of the commercial equity mortgage term.

And in this situation, the private lender or equity lender will also have to be comfortable with the future exit strategy as well as they will need to be paid out in one or two years once the lending term is over.

It will not be possible to get a commitment two years out that is of any real value, so the borrowers will have to provide a strong enough case and a strong enough security position to convince the equity lender that their exit will be in place.

So this essentially becomes three step financing where step two and step three have to be sorted out to some degree before the construction financing can be put into place.

In order to accomplish all of this the property owner/borrower needs to be committed to a multi year financing strategy that will allow exit strategy one and exit strategy two to be arranged on a timely basis.

If you require a multi step commercial construction financing strategy for either two step or three step financing, I suggest that you give me a call so we can go through your situation together and provide different financing options for your consideration.

Click Here To Speak Directly To Construction Mortgage Broker Joe Walsh For A Free Assessment Of Your Commercial Construction Financing Options

The post Multi Step Commercial Construction Financing first appeared on Ontario Construction Loans And Mortgage Financing.