Self Storage Lenders More Confident, DXD Capital Finds

September 24, 2025

Self Storage Executive Insights Finance & Investment National

Equipped with recently collected data, Managing Director Chris Bailey unpacks why this asset class continues to enjoy liquidity.

DXD Capital expects cautious optimism to replace the current prudence in the self storage lending environment, according to Bailey. Photo by Frankie Gomez Gallery, courtesy of DXD Capital

Lending sentiment within the self storage industry remains steady, largely due to the asset’s specificity and its recession-proof nature, evident in current self storage market trends.

As the industry matures, investor confidence and access to financing are playing pivotal roles in its evolution. During the early stages of the pandemic, when self storage development was booming, banks were the primary source of financing. Since then, the lending landscape has diversified, with debt funds, private lenders and insurance companies stepping in to play a much more prominent role in supporting the sector’s growth.

Still, despite this diversification, traditional lending options remain a cornerstone of financing in the self storage space. In its 2025 Capital Lender Survey, DXD Capital provided a snapshot of current lending sentiment, analyzing responses collected from regional and community banks, national institutions and credit unions. The Denver-based investor uses data to evaluate self storage development and acquisitions opportunities nationwide. Multi-Housing News spoke with Managing Director Chris Bailey about the survey’s results.

Acquisition and development loans seem to dominate the landscape today, with less interest in conversion loans, your survey found. What do you think are the reasons behind this?

Bailey: DXD’s 2025 CRE Lender Survey shows 94.1 percent of lenders target acquisitions and 88.2 percent target ground-up development, but only 17.6 percent have interest in conversions. Acquisitions, especially stabilized or light to medium value-add opportunities offer predictable cash flows, making them more receptive to underwriting constraints in today’s high-rate environment but those same offerings are commanding a premium price. Development loans remain attractive when backed by experienced sponsors and strong market fundamentals.

Conversions, in some instances, carry more execution risk including zoning, structural constraints, and cost variability and in a market where lenders are prioritizing certainty, these investments can be harder to finance. The current climate favors ‘sure bets,’ and right now that means proven operating assets and strong sponsors who focus on development in difficult markets.

Are there any particular factors that influence lenders’ confidence in the self storage sector?

Bailey: Despite macro risks, 94.1 percent of lenders report no change in appetite for self storage lending. Performance stability is a key reason. Another 70.8 percent of lenders did not restructure or extend any self storage loans in the past year. The sector’s resilience in both expansions and downturns supports this confidence.

With our surveyed lenders keeping storage exposure under 25 percent of their CRE portfolio, concentration risk is low, and the pullback in new supply has eased oversupply fears. DXD’s last 24 months of lender activity confirm that well-located, best-in-class sponsor-backed projects attract competitive financing.

What can you tell us about your findings in terms of self storage performance, compared to other CRE sectors in lenders’ portfolios?

Bailey: Nearly half of surveyed lenders said self storage performance matched other CRE sectors. This reflects normalization after the exceptional rent growth of 2021–2022. Stabilized properties now perform on par or better with multifamily and industrial assets in many bank portfolios. Underperformance typically stems from local oversupply or slower lease-ups, not systemic issues. DXD’s investments have driven occupancy and rent stability, underscoring self storage’s role as a steady performer rather than a volatility driver.

What are some of the major underwriting concerns today for self storage?

Bailey: Absorption risk in lease-up is the top concern for 88.2 percent of lenders, followed by oversupply (58.8 percent), sponsor capabilities (47.1 percent), and construction costs (41.2 percent). Exit cap rate risk, interest rate risk, and appraisal volatility were secondary concerns. In today’s climate, lenders underwrite the sponsor as much as the project.

DXD addresses oversupply and lease-up concerns through data-driven site selection, and DXD controls cost risk through early procurement and experienced and trusted general contractors. These mitigants are essential to clearing today’s more conservative credit directives.

Steel tariffs and disruptions in the supply chain remain a somewhat relative issue when it comes to lenders. What effects have you observed ever since this situation emerged?

Bailey: While interest rates and CRE softening are top lender concerns, tariffs and supply chain issues remain a moderate factor. Steel tariffs and pandemic-era logistics disruptions drove costs higher in the short term. Lenders responded by lowering leverage, requiring higher contingencies, and extending construction loan terms. In recent months, DXD has seen that material prices have stabilized, but lenders still price in the risk. DXD’s strategy of early procurement and vendor relationships has helped secure lender confidence, turning a potential risk into an opportunity for pricing management.

How long do you think this cautiousness in the lending environment will last?

Bailey: The survey feedback indicates 12 to 24 more months of conservative credit standards, with construction lending staying subdued to avoid oversupply. Elevated interest rates, regulatory pressure and lessons from the 2021–2022 lending surge are driving restraint. This period is self-correcting. Limited new supply supports asset performance, which will improve lender confidence.

How do you expect lending sentiment in the sector to change in the near future? Are there any major factors that lenders should pay extra attention to?

Bailey: DXD expects cautious optimism to replace the current restraint as macro headwinds ease. Rate cuts or stabilization would immediately improve sentiment by enhancing debt coverage metrics. Continued solid sector performance and controlled supply will also support a more open credit environment. Lenders will closely monitor local market supply, sponsor quality and macro indicators like inflation, employment and consumer activity. DXD, with its robust pipeline and trusted-sponsor status, is positioned to capitalize on this improving credit environment.