The Changing Shape of Self Storage Lending
A variety of capital sources are filling the vacuum left by retreating banks. Here's where you can find funding and what's ahead.
The self storage lending landscape has changed a lot over the past few years. Today, it offers borrowers the opportunity to benefit from a mix of traditional and alternative financing options.
Banks were the dominant lenders in the self storage sector in the first three quarters of 2020, accounting for two-thirds of the market, according to Yardi Matrix data. By 2024, however, there was an evident shift toward alternative options, with the share of loans originated by banks dropping to less than half of the market over the same period. While this was partly due to the health crisis-induced slowdown in investment activity and borrowers putting off refinancing, lending volume for debt funds and especially private lenders saw significant increases compared to previous years.
"As some of the other real estate asset classes, such as office and some retail, have suffered during and since the pandemic, investors and lenders have turned their focus on self storage and other asset classes," said Jason Robinson, Extra Space Storage’s Bridge Loan Program vice president.
For 2025, there's renewed optimism for a more robust acquisition environment, which will likely provide additional opportunities for non-traditional lenders.
Filling the void
Over the past five years, the self storage lending industry has evolved from a heavily bank-dominated space to a more diverse landscape with substantial roles filled by debt funds, private lenders and insurance companies. This shift has not only enabled borrowers to access capital from lenders that consider the self storage sector a safer asset class, but it has also pushed investment companies to branch out.
One such company is Andover Properties, which established a foothold in the market after noticing the limited options available to self storage borrowers in today’s financing markets.
"Regional banks, historically a large provider of self storage debt, have pulled back—whether by making fewer loans, no longer doing construction lending, requiring recourse, or requiring onerous depository relationships," said Andover Properties CIO Zachary Harding. "This has provided an opportunity for us to step in and be a debt provider."
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The Andover Storage Lending division was launched in early 2024 with a bridge loan to Madison Capital to refinance a Go Store It-branded facility in Richmond, Va. Soon after that, the self storage owner-operator paired its market knowledge with longtime investment partner TPG Angelo Gordon’s financial expertise.
"We believe that our partnership provides a compelling capital source to borrowers due to a faster underwrite and close period, as well as flexibility in the form of prepayments and personal guarantees," said Managing Director & Head of Commercial Real Estate Debt at TPG Angelo Gordon, David Busker.
"We don’t foresee banks being large providers of self storage debt due to regulatory restrictions, legacy loan issues and overall risk appetite."
Zachary Harding, CIO, Andover Properties
Other players joined the self storage alternative debt side even earlier. Extra Space identified a gap in the lending landscape in 2019. Lenders in the space weren't adequately addressing borrowers’ needs, especially during the lease-up phase of a project, and this prompted the company to launch their Bridge Loan Program.
"A traditional bank faces challenges in projecting where a storage property will ultimately stabilize and therefore banks often shy away from lending on the property’s value given the uncertainty surrounding the project’s absorption risks,” explained Robinson.
The core financing products offered by self storage lenders are the same as for any other asset class, mainly construction, bridge and permanent loans. In the first three quarters of 2020, permanent financing dominated the self storage lending landscape, Yardi Matrix data shows. This trend continued until 2023, when, during the same timeframe, permanent lending volume peaked and encompassed nearly 80 percent of the market. However, in the first three quarters of 2024, the same long-term mortgages made up less than half of the total loans. Meanwhile, construction financing grew to encompass more than 40 percent of the market.
Today, the self storage lending landscape remains dynamic and is becoming increasingly competitive on the lender side.
"Despite industry operating headwinds and ongoing capital markets volatility, many types of lenders with different financing products are actively pursuing our clients’ self storage financing requests,” noted JLL Capital Markets Director John Williamson. With a nationwide presence, the company’s capital market business has secured financing from both traditional and alternative, non-bank lenders, and has an increasing pipeline of deals.
What's next?
Going forward, self storage borrowers need to stay abreast of market dynamics, lender expectations as well as what new financing solutions out there.
"There are a myriad of options available to borrowers, with many lenders thinking outside the box and offering innovative solutions," said Robinson. "While finding the right lender may take some time and effort, it will certainly pay off in the long run. Borrowers should be patient and set their expectations appropriately."
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Overall, there's a positive trend in sentiment within real estate credit markets, according to Williamson, with insurance companies, debt funds and CMBS lenders actively deploying debt. Even with tighter scrutiny from lenders, there are several financing options out there for self storage borrowers whether they are looking to finance a single-asset acquisition, refinance a whole portfolio or to secure a construction loan.
Meanwhile, lenders should continue to carefully evaluate opportunities and view loan requests through a conservative lens relative to a few years ago. "Banks’ focus on the health and size of their mortgage books relative to customer deposits reduced the appetite for new loan originations over the prior two years. As the banking sector slowly returns to the market, we’ve seen a heightened focus on increased loan structure and credit enhancements, such as cash flow sweeps and recourse if even partial," said JLL Capital Markets Senior Director John Bauman. “However, where banks have pulled back, other lenders including new entrants to the market are stepping in and capitalizing on the opportunity to lend to investors on an attractive risk-adjusted basis.”
Nearly 920 self storage loans totaling $4.1 billion are set to mature this year, according to Yardi Matrix data. This, coupled with the retreat of banks, means there's a clear opportunity for other market participants to meet borrowers' needs.
