Jeff Bass, SVP, Commercial Lending
In a constantly evolving market, our area industries are facing their own unique challenges and uncovering new opportunities. With over 30 years in the financial realm, and 11 of those specifically dedicated to the self-storage sector, SVP, Commercial Lender, Jeff Bass gives readers an inside look at this enduring industry.
The self-storage sector has enjoyed tremendous success over an extended period since the Great Recession, including a stellar pandemic spike in performance. Now, we have reverted to a more normal pre-pandemic period of occupancy, rental rates, and new project lease-up trajectory. However, what is not so normal is the current interest rate environment, higher operating costs, inflationary impact on storage demand, and ongoing labor challenges.
Current Industry Trends
We are seeing a trend where development projects are becoming tougher (or even impossible) to underwrite due to higher construction and entitlement costs, much higher interest rates, and moderating occupancy and rental rates.
At the same time, many new development projects in the ground assumed aggressive lease-up metrics, which are not materializing so well right now.
The current market is throwing many industries for a loop – including self storage, which is coming down from a boom of business during the pandemic. Even with new challenges, businesses are finding ways to succeed when partnered with a reliable lending partner.
Going Forward
If any component of your project needs stabilization to meet loan covenants in the future, be cautious with the use of debt capital. Often, the solution is simply more equity to get the project to be financeable, and to lessen the risk of loan default down the road.
A former banker once told me that there are no bad loans, just bad loan amounts. Instead of getting lost in assumptions associated with pro forma modeling, take a step back and ask yourself, “Does this investment really make sense?”
To find opportunities going forward, more scrubbing and patience will be required. Be willing to pass on something that is too much of a stretch. When you do find the project that makes sense to pursue, be sure to select a reliable lending partner with experience in the self-storage industry.
As Mark Twain once said, “History doesn’t repeat itself, but it often rhymes.” By being pragmatic now, we can continue to prosper while also navigating current challenges and preparing for new and unforeseen ones.
We’re Here to Help
While there are hurdles to overcome, the Waterford Commercial Lending Team remains committed to being the backbone of financial stability our customers have come to rely on.
With decades of experience and an unmatched dedication to our customers, our team can help your business reach new heights.
Our dedicated team meets our customers where they’re at with answers to everyday business needs, solutions to complex capital requirements, and an always open line of communication. As your business looks ahead to what’s next, you can count on our professionals to help get you there.
Learn more about our Commercial Lending and Business Banking services here.
About the Author
Jeff Bass is an SVP of Commercial Lending at Waterford Bank, N.A in Troy, Michigan. Jeff has an extensive background in business development, financial analysis, and loan/deposit portfolio management – with a concentration in commercial, construction, residential, and real-estate lending. Outside of the office, he enjoys spending time with his wife in their ministry, cycling, and being a foodie. If you’d like to connect with Jeff or learn more about commercial lending, please contact us here.
