I currently have a customer looking to finance the construction of a self storage unit for over $3MM. I have never been envolved in this industry and would like to get as much info. as possible about the deal. This is not the first unit for this client. They currently have over 5 existing storage units. The request terms are Prime minus for 18-24 months. At which time they fee the units will be 90% occupied. The end financing will be in the CMBS market so all I am in for is the construction deal. What type of point do you think is feasible (0.5pt or 1pt)? Any covenants I should implicate? Answers to questions like these or any suggestions is what I am looking for.
Any Further advice would be great

Thanks

~R

Are you a lender or a broker? Lenders typically charge 1/2 to 1 point for the loan and fees for servicing the draws. You'd probably want to include some DSCR and leverage covenants and prohibit second liens. Also include quarterly and annual financial statements and monthly A/R - A/P reports.

Lender. I was thinkin about placing some covenants on the stabalization of the units. The gave me estimates of when they feel the units will be 50%, 60% and so on occupied. If they didn't meet these requirments at their desired times increasing the rate.
I was just curious what the industry standard was for these types of loans in regards to term and rate.

Funny you mention self-storage because normally we do not finance their construction. However, a deal of this nature landed in our department recently. It is being underwritten by an analyst on the next County, which means I am not signing off on it, but if I remember correctly, the structure/background was as follows:

- The borrower has another self-storage facility, which is 95% occupied and he gave us financials for the last two years {mitigates the single use aspect of the deal somewhat}

- The deal had a couple of buildings that will be “for sale” so we structured the disbursement to begin once 50% of the “for sale” units are presold. I am sure that the analyst will perform downsides of DSC using that information.

- We have a feasibility study.

- The construction facility has an extension option to allow for stabilization before converting into a term.

- Interest reserve.

- 100% of the sale proceeds from the “for sale units” go to the loan.

- Pricing was above prime for construction and a standard 1% fee.


So far that is what I remember, I do not have the package as it was assigned to an analyst that does not report to me, but the above might give you hints as to how to structure it.