Expect lending for self storage to pick up as the capital markets improve. This has been a favored asset class the last few years, which should continue in 2026. Lenders like the low default rates and consistent operating performance in the space. Banks are back competing for new transactions, and the permanent market continues to be strong with CMBS lenders closing as many loans as they can get their hands on. All-in rates are at reasonable levels and spreads should continue to tighten to where owners are encouraged to move forward with new transactions and refinancings. Keep an eye out for lower fixed and floating rates, which will improve cash flows. Expect more bids and tighter spreads next year.
Leverage will be in the 55% to 75% range. Ground-up construction will reach 75% LTC, with a few debt funds pushing even higher. Rates for the strongest properties will be the in the mid-5% to mid-6% range. Debt yield will be 8% to 9%. DSC will start at 1.25x to 1.35x.
Banks such as Wells Fargo, BofA, Bank OZK, Fulton Bank, Banc of California, Axos Bank and Fidelity Bank will be more active going forward. Banks will provide five-year terms with three years of interest only. Rates are typically over SOFR, which has placed loans in the mid-6% range. DSC will start at 1.25x with a 25-year amortization. Banks will look closely at global cash flow and want 10% in liquidity, although this can be negotiable. Banks can finance any size loan, provided the property is performing well and in favorable shape, making them a good bet for the smaller $5M to $20M deals. Local banks will be the best bet for sub-75,000-s.f. properties.
Life companies such as PGIM Real Estate, MetLife, Voya Investment Management, Guardian Life, Aegon, TruStage and Symetra are active self-storage lenders, although at lower leverage and targeting longer performance stability. LCs will seek 100,000-s.f.+ Class A assets.
CMBS players such as Wells Fargo, BofA, Barclays, Citi, Goldman Sachs, Morgan Stanley, Argentic and Basis Investment Group will strive to compete. Expect CMBS lenders to finance smaller loans to diversify their pools for securitization. Rates will be in the low to mid-6% range. They want a minimum 1.30x DSC typically but can come down to 1.25x for well-located, higher quality assets.
Debt fund and private money lenders including ORIX, Canyon Partners Real Estate, Affinius Capital, Osprey Capital, Thorofare Capital and Post Road Group will pick up market share. Emerald Creek Capital, BridgeInvest, RRA Capital and A10 Capital will provide bridge loans, while CrossHarbor Capital Partners and ASB Real Estate Investments will provide equity. These lenders want to see an 8.5% exit debt yield.
Underwriting will still be constrained by debt service coverage ratios and debt yield. Lenders will require stabilized occupancy in the 82% to 92% range and typically believe that rental increases will be in the 3% to 8% range. Many markets are starting to stabilize again, allowing for rental increases, as opposed to declining rents. Although do not expect lenders to underwrite year-over-year rent growth.
Lenders will target institutional-level properties with at least 100,000 s.f. of space. Watch for more available capital for cold storage assets. There have not been as many deals trading this year. Self storage is driven by the multifamily market and since lease-up is taking longer, borrowers are having trouble executing their business plans. There will be a push toward covered land plays where borrowers bought land at a favorable basis and can take it through construction. Lenders will pay close attention to overbuilding in certain markets and will not push proceeds in those areas.
Expect lenders to seek core markets with high population growth as these are easier to lease up. Many markets in the Southeast and Southwest are still seeing population growth. North Carolina, South Carolina, Florida, Texas and Arizona have continued to see in migration, mainly from the northern cities. Areas with job growth such as Texas, Phoenix, Orlando, Fla., and Salt Lake City will see lender interest. There will also be an increase in the retirement age demographic as a driver of the in-migration phenomenon in the Smile states and in turn this will increase demand for self-storage facilities. Major markets such as New York City, Los Angeles and the San Francisco Bay Area will also be considered. Oversupplied Midwest markets will not be desired and there could also be some caution in Florida next year.
The majority of lenders require owners with some experience in the operation of these assets. Lenders want to see borrowers who have been through a cycle before. The ability to demonstrate operating experience/commercial asset management experience is helpful to lenders and credit departments. For a new owner, this is accomplished through having an experienced management company handle day-to-day operations. Net worth should at least equal the loan amount, and lenders will seek 5% to 10% in liquidity.
