Sub $150,000 Take Out Loans, Storage Condominiums

[Ted Deits]

I am a developer of storage condominiums in Southern California. I am on my 2nd project, my first being in Beaumont Ca   and my 2nd in Palm Springs

Back story-

Storage condominiums while rather new, are filling a gap that has been ignored by Self Storage and Industrial developers. Self Storage will only provide storage of up to about 300 Sq Ft. , and industrial property developers ignore unit sizes below 1,500 square ft. We develop storage condos, well suited for RV, car and boat storage from 500 sq ft, up to 2,000 square ft. The main difference is these are not rented, but purchased by individuals. They come with title insurance, fee simple ownership, and the ability to buy, sell, rent at the owners discretion.

The Beaumont property is sold out and the value of these storage condos has doubled.

Palm Springs is still under construction, with about 78% of the units under construction already sold. The demand is there, no doubt about it. We are also looking at a few other areas for additional developments.

The problem -

These are considered commercial developments, and as such the take out (buyers financing) would be through a commercial bank. However, the loan amounts of theses condos is too low to interest a bank. Generally loan amounts range from $70,000 to $175,000. Banks won't touch them as the profit potential is very low, and it is difficult for them to justify making such small loans. The banks that will get involved are quoting 50% LTV with over 4 points up front. My buyers are frankly insulted at such an offer as they typically are very wealthy with lots of assets

The obvious solution is for the developer, me, to carry the paper. That’s fine except unlike traditional self financing where you amortize the gain over the life of the loan, as a developer, all the gains must be paid in the first year, making this financing concept unworkable.

My buyers typically are ridiculously over qualified. Many with well over 6 figure incomes, with 7 figure assets. While they could pay cash, many prefer to finance their assets. This has proven to be the “Achilles Heel” for this type of development.

To really ramp up this new concept, I need to find a resource for small loans for these units. While we are doing just fine relying only on cash buyers, I feel the sales and project absorption would be much faster and frankly at a higher price point if we had 25% down financing and reasonable amortizations of 20 - 25 years. Any suggestions would be greatly appreciated.

Thank you

Ted Deits