32 min
Step by Step Actions for Self Storage Operators to Take During This Downturn Commercial Real Estate Investing From A-Z
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- Investing
What is the state of the self storage market in this environment? What should operators prepare for? Where should you look for opportunities? We talked with RK Kliebenstein, President of Coast to Coast Storage, an industry veteran with over 30 yrs of experience.
You can read this entire episode here: https://montecarlorei.com/step-by-step-actions-for-self-storage-operators-to-take-during-downturn/
How should the operators prepare for this potential economic hit?
For storage managers, your health comes first. I know that that’s going to be an unpopular position with some of the owner operators as employers, that their staff would perhaps not come to work, but I think that we can work from home in many cases, we don’t have to have a lot of contact with the public. But more than anything else, I honestly believe that a self storage manager’s first responsibility Is to themselves, and their family. Going to work in an unnecessary capacity is not a recommendation that I would give them. If it’s safe for them to go to work because they don’t have public contact, and they’re not in high contact with places and objects that have been touched by the public, that’s a consideration, certainly, but I know a lot of offices have just said that they’re not going to have contact with tenants directly. They’re open via chat, email, telephone.
For storage owners, it’s a different consideration as we now go into where are you at in the debt cycle. Those stores that are in highly competitive markets, where they themselves or their competitors are in lease up and there are a lot of vacant spaces, and those in the third category, the very high levered owners are going to be the hardest hit by the event and will have to make the toughest decisions. I don’t know that we’re going to see the real effect of this for perhaps 60 or 90 days as loan clauses with MAC clauses in them (Materially Adverse Condition clauses) begin to be in effect from the lenders and then also the consideration of force majeure clauses, which don’t occur in self storage month to month rental agreements, but certainly would occur in finance arrangements and contracts. It will be interesting to see how that all begins to play out and how the Self Storage sector may fare against other asset class type of lending. Keeping in mind, Self Storage has notoriously had the lowest foreclosure rates, regardless of economic conditions of any other asset class. The only one that ever has come really, really close to it are NNN leases and with triple A credit companies, and also, interestingly enough mobile home parks.
Loans
What I’m seeing in terms of new loans right now is interesting. The CMBS market, securitized loans, for self storage at least, has pretty much collapsed completely. The bond market being unstable, and that being where these loans are sold, until that bond market is firmed up and we know where the pricing is going to be, I would say the CMBS market is likely to be on hold. I’ve even seen them because of the Material Adverse Conditions or MAC clauses commitments that were set to fund over the last 10 to 15 days. We’ve seen a number of different reactions to the current environment but I think the CMBS market is basically collapsed. I think the only viable market right now is the life insurance company market, they seem to still be quoting, and closing loans that were in process. I think that their underwriting has changed a bit. But that market is still a little bit active. When the first reaction to the turn in the economy was to lower the Fed rate, that actually put a lot of lenders in a position to increase the interest rate floors.
RK Kliebenstein
rk@askrk.com
www.askrk.com
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Support this podcast: a...
What is the state of the self storage market in this environment? What should operators prepare for? Where should you look for opportunities? We talked with RK Kliebenstein, President of Coast to Coast Storage, an industry veteran with over 30 yrs of experience.
You can read this entire episode here: https://montecarlorei.com/step-by-step-actions-for-self-storage-operators-to-take-during-downturn/
How should the operators prepare for this potential economic hit?
For storage managers, your health comes first. I know that that’s going to be an unpopular position with some of the owner operators as employers, that their staff would perhaps not come to work, but I think that we can work from home in many cases, we don’t have to have a lot of contact with the public. But more than anything else, I honestly believe that a self storage manager’s first responsibility Is to themselves, and their family. Going to work in an unnecessary capacity is not a recommendation that I would give them. If it’s safe for them to go to work because they don’t have public contact, and they’re not in high contact with places and objects that have been touched by the public, that’s a consideration, certainly, but I know a lot of offices have just said that they’re not going to have contact with tenants directly. They’re open via chat, email, telephone.
For storage owners, it’s a different consideration as we now go into where are you at in the debt cycle. Those stores that are in highly competitive markets, where they themselves or their competitors are in lease up and there are a lot of vacant spaces, and those in the third category, the very high levered owners are going to be the hardest hit by the event and will have to make the toughest decisions. I don’t know that we’re going to see the real effect of this for perhaps 60 or 90 days as loan clauses with MAC clauses in them (Materially Adverse Condition clauses) begin to be in effect from the lenders and then also the consideration of force majeure clauses, which don’t occur in self storage month to month rental agreements, but certainly would occur in finance arrangements and contracts. It will be interesting to see how that all begins to play out and how the Self Storage sector may fare against other asset class type of lending. Keeping in mind, Self Storage has notoriously had the lowest foreclosure rates, regardless of economic conditions of any other asset class. The only one that ever has come really, really close to it are NNN leases and with triple A credit companies, and also, interestingly enough mobile home parks.
Loans
What I’m seeing in terms of new loans right now is interesting. The CMBS market, securitized loans, for self storage at least, has pretty much collapsed completely. The bond market being unstable, and that being where these loans are sold, until that bond market is firmed up and we know where the pricing is going to be, I would say the CMBS market is likely to be on hold. I’ve even seen them because of the Material Adverse Conditions or MAC clauses commitments that were set to fund over the last 10 to 15 days. We’ve seen a number of different reactions to the current environment but I think the CMBS market is basically collapsed. I think the only viable market right now is the life insurance company market, they seem to still be quoting, and closing loans that were in process. I think that their underwriting has changed a bit. But that market is still a little bit active. When the first reaction to the turn in the economy was to lower the Fed rate, that actually put a lot of lenders in a position to increase the interest rate floors.
RK Kliebenstein
rk@askrk.com
www.askrk.com
---
Support this podcast: a...
32 min