Self Storage Financing Options

[Weina Shi]

Dear fellow investors,

I am buying a self storage facility and I am considering a few options. The facility has 200+ units of existing facility and a potential 500+ unit expansion plan. 

Option 1: CMBS 40% down payment, 10 year IO, non recourse at interest rate in the high 3% range - in this case, I am not sure if there is a good option to finance the expansion. The area to build additional units is on the same parcel, so unlikely bank will be willing to finance given the CMBS that is in place. Assumable loan.

Option 2: CMBS with 25-30% down, 25 year amort, balloon in year 5, 7, or 10, non recourse with interest rate between 4-5% range - same issue for the expansion. Assumable loan.

Option 3: bank financing with 25% down, 20 year amort, balloon in year 5 (if not 10), full recourse with interest rate at around 3.25% - the bank can finance the existing facility and expansion.

I plan to buy additional properties so non recourse is ideal from a risk mitigation perspective but I am not sure how to work around financing the expansion.

How much construction cost should I budget per sf? 

Thank you.