Self storage- Financial Lending update 09 2023

[Henry Clark]

Just doing an update/ checkin with our major bank.   For reference they are a regional state bank.  Federal lending limit around $20mm per customer as a reference point.

Asked how is the financing outlook from their banks standpoint.

1.   They aren’t calling any loans yet.

2. Most of the Covid money has now been spent so they don’t have those large deposits they need to loan out.  Thus tighter with lending.

3.  Customers whose 5 year balloons are coming due they are taking them to longer amortization’s.  Say 10 out to 20 to get the cash to flow properly if needed.

4.  New loans, unless you’re already doing business and have deposits with them, they are passing on new loans.  
5.  We have two or three projects we may pull the trigger on.  They are set to go with them as long as the financials look good on the project. 

No real change in our banking.  But that is due to our bank loyalty and not shopping every loan.  Plus they know us and our risk reward levels.

[Ronald Rohde]

Yep, similar to my primary regional bank lender in DFW. Not looking to beat any other term sheets, will keep lending to existing customers, but very skittish for new borrowers.

I have two PG loans, due in 2026 and 2027, but not balloon, just rate adjustment.

[Henry Clark]

Update from one of our bankers.  60,000 population  town, multi locations state wide, $20mm Fed lending cap.

1.  Not seeing a lot of stress in their clients.

2.  Some are coming in and setting up lines of credit just in case.  They only extend them out for a year.

3.  He sees the next stress point this fall.  By then insurance will have been renewed and the new property tax assessments will start to be paid, versus just on paper.

4.  Asked if many people are refinancing and extending out their amortization from say 10 years back out to 15 or 20 due to refinancing at balloon periods.  He said very few are doing that.

5.  A solution they are offering is a "Swap" when the 5 year balloon comes due.  Cuts rates by about 2% points, from say 8 to 6.  Has severe prepayment penalties.

6.  Outside his market, he ran into a hotel syndication that did a capital call for 1.x mm; and is going to have to go back for a $4.x mm capital call.  On a $28mm deal.  Said it probably won't work.  They are running at 66% occupancy which is good, but they would need to be near 90% occupancy which won't happen to make the numbers work.

Keep in mind we are in Iowa in the Midwest.  Things don't go up or down and dramatically as in other locals around the country.