Self Storage- SBA Funding 09 13 2021

14 Replies

Self Storage- SBA Financing 09 13 2021

Our 7th location has taken about 3 years to get financed on our Self Storage project. The project was under a Construction Loan interest only while we processed our SBA loan. The original SBA loan proposal took 9 months to process, which was extremely long compared to the 3 to 4 months projected. We then got the property and proposed facility appraisal and the appraisal was about $1,000,000 over cost. Which is great, but I found out I could not use that appraised equity value on the next phase of this project which was to be Flex/Contractor buildings. SBA requires 51% occupancy by the applicant. Plus they just didn’t like the idea to begin with. Thus I stopped the loan process. Even though they were going to give us 6 months both principal and interest for the SBA portion of the loan with the Covid funding/ARRA.

This is an 8 acre property, we split 4 acres for the Self Storage and the other 4 acres is to be for a Flex/Contractor complex. The SBA loan took all 8 acres as collateral. I knew if I proceeded with the loan they probably would not rescind the additional 4 acres. Put the loan on pause. Did a Subdivision of the land with the city. This took about 6 months. Finally got the subdivision approved.

Went back to the SBA and put in a request for the property to be released. Covid hit. Three quarters of SBA personal were switched from loans to process PPP (Paycheck Protection Program). Thus any loaning processing got extended indefinitely due to lack of resources. This was a simple request since the total Appraised project plus the original land purchase we paid ($200,000), left the banks with about $600,000 “extra” collateral value. Far more than the 10% requirement, which with the collateral they have could be an $8mm project.

Loan Signing- September 13, 2021

10%- our portion

45%- Local Bank

45%- SBA

Terms:

Local Bank- 4.25% 10 year term; 5 year fixed/renewal; At 5 years renewal interest will be 1% point over index, currently at 3.25%. No prepayment penalty. No origination fee from the initial Construction loan.

SBA- 2.86% was 4.7% when we started the above process; 20 year fixed; 10 year descending early payment penalty.

Cash flow:

Principal and interest is $8,500 per month. Currently we are running $12,500 at 48% financial occupancy, and can cover. Normally we shoot for a 65% occupancy for breakeven (P/I, property tax, insurance, income taxes, etc). Since we developed this location and had the hard costs, we were able to do a Cost Segregation, thus no Income taxes for the first two years, to help with cash flow.

Shortcomings/Whoopee:

The above additional Appraised value can only be used through another SBA loan. When we met with the banker today, let him know we are already to start Phase 2 (see separate post). The additional collateral from Phase 1, covers phase 2, thus no more capital infusions. We also discussed our Flex/Contractor building project, which there is a separate Post, and he noted the 4 acres at the appraised value will cover LTC/LTV at 25% up to a total $2mm project, so no cash infusion for that project is required. Things are looking good.

Wisdom learned:

a. Always segregate properties up front, if you plan two different projects. We knew up front we would not do the full 8 acres in Self Storage (market risk management- 230 built, another 200 phase 2, Could have built another 350 on the flex site). Intentionally built the storage on the backside of the property and left the front for the Flex buildings to utilize the Vehicles per day around 15,000 on 4 lane road. Will make it easier to rent the Flex buildings.

b. Bad luck is good sometime. SBA 2.86% versus if done earlier 4.7%.

c. Don’t underestimate how long the government takes, both on the Loan processing and the re-zoning/subdivision process.

d. Construction period interest. This is before we started renting was about $50,000. Due to the weather and construction taking about an extra year, we were about $35,000 over our original budget.

Start small and Make Your Big Mistakes Early

Yep, still learning.  Ya'll are probably getting bored reading these posts.  About another year and another 700 units built on existing sites and I will be done posting.  Just passing the time, sharing experiences.

Originally posted by @Henry Clark :

Self Storage- SBA Financing 09 13 2021

Our 7th location has taken about 3 years to get financed on our Self Storage project. The project was under a Construction Loan interest only while we processed our SBA loan. The original SBA loan proposal took 9 months to process, which was extremely long compared to the 3 to 4 months projected. We then got the property and proposed facility appraisal and the appraisal was about $1,000,000 over cost. Which is great, but I found out I could not use that appraised equity value on the next phase of this project which was to be Flex/Contractor buildings. SBA requires 51% occupancy by the applicant. Plus they just didn’t like the idea to begin with. Thus I stopped the loan process. Even though they were going to give us 6 months both principal and interest for the SBA portion of the loan with the Covid funding/ARRA.

This is an 8 acre property, we split 4 acres for the Self Storage and the other 4 acres is to be for a Flex/Contractor complex. The SBA loan took all 8 acres as collateral. I knew if I proceeded with the loan they probably would not rescind the additional 4 acres. Put the loan on pause. Did a Subdivision of the land with the city. This took about 6 months. Finally got the subdivision approved.

Went back to the SBA and put in a request for the property to be released. Covid hit. Three quarters of SBA personal were switched from loans to process PPP (Paycheck Protection Program). Thus any loaning processing got extended indefinitely due to lack of resources. This was a simple request since the total Appraised project plus the original land purchase we paid ($200,000), left the banks with about $600,000 “extra” collateral value. Far more than the 10% requirement, which with the collateral they have could be an $8mm project.

Loan Signing- September 13, 2021

10%- our portion

45%- Local Bank

45%- SBA

Terms:

Local Bank- 4.25% 10 year term; 5 year fixed/renewal; At 5 years renewal interest will be 1% point over index, currently at 3.25%. No prepayment penalty. No origination fee from the initial Construction loan.

SBA- 2.86% was 4.7% when we started the above process; 20 year fixed; 10 year descending early payment penalty.

Cash flow:

Principal and interest is $8,500 per month. Currently we are running $12,500 at 48% financial occupancy, and can cover. Normally we shoot for a 65% occupancy for breakeven (P/I, property tax, insurance, income taxes, etc). Since we developed this location and had the hard costs, we were able to do a Cost Segregation, thus no Income taxes for the first two years, to help with cash flow.

Shortcomings/Whoopee:

The above additional Appraised value can only be used through another SBA loan. When we met with the banker today, let him know we are already to start Phase 2 (see separate post). The additional collateral from Phase 1, covers phase 2, thus no more capital infusions. We also discussed our Flex/Contractor building project, which there is a separate Post, and he noted the 4 acres at the appraised value will cover LTC/LTV at 25% up to a total $2mm project, so no cash infusion for that project is required. Things are looking good.

Wisdom learned:

a. Always segregate properties up front, if you plan two different projects. We knew up front we would not do the full 8 acres in Self Storage (market risk management- 230 built, another 200 phase 2, Could have built another 350 on the flex site). Intentionally built the storage on the backside of the property and left the front for the Flex buildings to utilize the Vehicles per day around 15,000 on 4 lane road. Will make it easier to rent the Flex buildings.

b. Bad luck is good sometime. SBA 2.86% versus if done earlier 4.7%.

c. Don’t underestimate how long the government takes, both on the Loan processing and the re-zoning/subdivision process.

d. Construction period interest. This is before we started renting was about $50,000. Due to the weather and construction taking about an extra year, we were about $35,000 over our original budget.

Start small and Make Your Big Mistakes Early

Yep, still learning.  Ya'll are probably getting bored reading these posts.  About another year and another 700 units built on existing sites and I will be done posting.  Just passing the time, sharing experiences.

Very good info!

Thank you for sharing !

@Bob Vollmer   Your town can take 270 units. Drive around and see how many are there.  We are in Glenwood, Iowa; your next to Glenwood Springs, Co.  Same guy built ours, then moved to Colorado to build that town.  Send some steam pictures of the springs this winter.

Go down to Apple Box Storage and make them an offer.  If I have a registered Hereford Cow herd, I don't need a Charolais bull.  I think you can buy this one.  As always, check the zoning and run your numbers.  And there aren't any cows there.

@Mary Jay

My brother and nieces live in Phoenix.  Great town, kind of hot.  Like he says though, its a "dry" heat.

Don't wish anything bad on Phoenix, but it took a real nose dive the last hit.

Sell your house.  No taxes if you lived 2 of the 5 years.

Run the numbers on the Van Buren st Selfstorage.  Has live in quarters or you can make it that way. Do self service, you don't need to meet your clients.  See our youtube.  Do a 10% SBA loan while interest rates are low.  Either rent your house out, or with extra money buy another property if you live on site.

I like it, since it is a small operation.  They don't show any numbers though.

Run the numbers.  Check out the property next to it, and see if you can expand.

@Jai Reddy

Lukewarm on storage?  You know how you push someone to do something then they won’t do it.  But if you tell them not to do it, they will do it

If I remember tomorrow, I’ll write a post on why “ not to invest” in storage.  See if I can convert you to the dark side. 

@Henry Clark Thanks for the advice! There's only a couple places around my town and I'm trying to figure out the best way to approach them (two are owned by people who live out of the area). Funny that you live in a Glenwood as well! There are definitely more units in Glenwood Springs than in my exact town or the other neighboring communities. It's an interesting time out here. Real estate is booming and we're seeing a large influx of people from out of state. Apple storage is one that I had written off to be honest. A large company bought it and the surrounding mobile home park a year or so ago. They do have a 3rd party managing the storage, and to be honest, it doesn't look like it's run very well... maybe I'll reconsider it and try to learn some more about them. Do you mind if I ask how you came up with the 270 units for my town? 

@Bob Vollmer

I use a factor of 6 units (15/20 size) per 100 people in an area.  You can include outside city limits also, if isolated.

As you have heard, it costs nothing to ask.  Pick a driving radius of ?? miles, we use 40 miles, and every 6 months let them know your interested.  Pick the correct size, type and mom/pop.  

Wow I thank you for taking the time to explain everything in such detail. So Thank you so much this really give us a deep dive on the most scary part of this kind of proyect. 🙏🏼👍

Filing for SBA loan on another property. Attached are some of the info needed:

1. Balance sheets as of 12/31/xx Current year 08/31/2021 and 12/31/2020 2019 2018

2. Interim income statement, must be within x months of filing. 08/31/2021

3. Debt schedule as of the most current date 08/31/2021

4. Tax returns for last three years.

5. Tax returns for any associated companies for last two years.

6. Full documentation of construction or purchase cost. Either a General contractor bid or actual invoices.

7. If LLC or corporation, need Corporation certification and Operating agreements.

8. SBA form 413

You can finance with the SBA up to $5mm.  This is there portion of the loan.  Example:  You $1mm; SBA $5mm; Local Bank $5mm. rough numbers.