The Storage Investor Show
Learn how to turn your cash into cash flow with self-storage and small bay industrial. If it has a roll-up door, The Storage Investor Show covers it. Your host, Kris Bennett, will ask the right questions to help you find, fund, and close your next deal. New episodes every Tuesday.
The Storage Investor Show
The BEST Storage Financing Secrets Revealed in 2025
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DESCRIPTION
Securing the right financing for your self-storage investment could mean the difference between a thriving asset and a stalled project. In this eye-opening conversation with Adam Karnes, VP at BS Group specializing in self-storage debt financing, we explore the realities of today's lending landscape and what it means for your next deal.
ABOUT OUR GUEST
Adam Karnes is VP at The BSC Group and can help you with your storage financing needs.
The BSC Group website: https://www.thebscgroup.com/
Connect with Adam on LinkedIn: http://linkedin.com/in/adamkarnes/
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Hey everybody, welcome to the Storage Investor Show. My special guest today is Adam Karnes. He's over at the BSC Group. He's the VP there, specializing in self-storage debt financing. I've had Adam on the show a couple of times in the past, but I thought it was really good to have him back on here at the end of Q1 2025 to talk about debt financing for self-storage. So all you guys and gals out there that need a loan or looking for a loan or looking for some terms, generally speaking, to plug into your underwriting model and kind of what debt is looking for right now and where capital is going, I'm happy to have Adam on and answer those questions for you guys.
Speaker 1:We're going to get to a couple of different things. So three parts here kind of a market overview in the beginning, some practical financing considerations and then looking ahead for the next 12, 18-ish months or so. So, adam, thank you for being on the show. Chris, thanks for having me. It's always great to see you. Absolutely, man, 100%. So in a previous episode we covered a lot of things like kind of nuts and bolts and LTVs and that kind of stuff and what debt options are out there life cos, bridge lenders, construction loans, perm financing, et cetera. We'll talk about some of that here to kind of get a refresher on a little bit of that.
Speaker 1:But let's start off right now with what we're seeing in the market. Just today, as of today, march 27th, I saw on the Wall Street Journal that Trump is going to announce tariffs on autos coming from Canada and Mexico. There's kind of been, as the news says, a whipsaw effect with tariffs are on, then they're off, then they're back on, but they're not as bad. But there's still metal tariffs and all that kind of stuff. So it's kind of messing with a lot of people's heads. What are you seeing right now in the debt markets for self-storage at a high level?
Speaker 2:Yeah, absolutely. Just a quick comment. I would say, yeah, put me to sleep for a couple of weeks and wake me up when they make the decision on the tariff.
Speaker 2:What's going on? What we're seeing right now is actually an effect, I think, of some of that. We're seeing a lot of volatility in rates, so what I mean by that is the treasury is bumping up and down Every day. They move up and down the five-year and 10-year treasury, which are most common pricing indicators for conventional storage debt. What we're seeing overall is that lenders still love storage. So what I mean by that is storage is such a core property type for a lot of lenders they're replacing I think I mentioned this last time core property type for a lot of lenders. They're replacing I think I mentioned this last time they're replacing a lot of their what would have otherwise been distributions for office. The office sector is struggling, so lenders love storage. Now, with that said, there's been some slowdown in occupancy growth, rate growth, that sort of thing. So bridge debt is actually very in focus these days and, despite all that volatility in rate, there are some excellent executions out there. We're out in the market with a lot of different kinds of deals development deals, refinance, acquisitions, recapitalizations and so there's still very strong debt available out there in the market.
Speaker 2:But one of the overarching pieces of advice I was going to leave. Anybody that's watching this with is trying to-centric market where borrowers can call the shots. Lenders are able to be more careful. They're busy. There's potentially less lenders that have more deals they're looking at, so they can be selective. So if a deal works for something you're working on whether it's an acquisition, construction, refinance a bird in the hand is worth two in the bush, as they say. And even if you don't get 100% your perfect terms that you're hoping for, if you get really close, it's a good time to transact.
Speaker 2:Rates are really in a pretty good spot. I know they're not 3%, 4% like they were a couple of years ago, but they've leveled out, they've come down and there's some really attractive financing out there right now for self-storage borrowers. And the other thing I would just say quickly is you know, depending on what life cycle your asset is in, if it's a totally stabilized asset, it's a pretty clear cut. You know, we know where we would take you as a mortgage broker If you're looking for bridge debt. We've been doing a lot of bridge debt out in the market and it, you know, it really depends on the story of.
Speaker 2:Lenders don't want to say oh, they don't want to hear the story of, oh, we're going to raise rates 40% over the next three years. They say, well, what are rates today? Because there's been some softness in rates, and so that's another piece where right-sizing bridge debt, for example, you have to really consider what your asset's been doing historical, almost more than pro forma in a way. That bridge lending has kind of shifted, so they're not interested in hearing that you're going to raise rates double digits every year for the next three years. That story is somewhat played out.
Speaker 2:It exists, it happens, but you kind of have to look at what rates are in the market today, and but there's a lot of. The overarching theme is there's a lot of good debt products out in the market today and if one works for a deal that you're looking at whether it's something that a mortgage broker like myself brings you or one of your existing relationship lenders brings it to you it's good to consider it and not try and say, oh, I'm going to wait until rates come down because we don't really know when that's going to happen, especially with what you started with. The tariff conversation is causing concern about inflation still.
Speaker 1:Yeah, I think we should throw the rates out that existed back in 2001,. Two, and obviously they started raising rates in 2022. It was March 2022. And then they went up like a rocket ship, a hockey stick from there, the fastest pace in what 40 years, or something like that. So I don't like, unless the 10 year, excuse me unless the Fed lowers rates to at or near zero, we're not going to see rates like that again, because that's what it was at that time. It was at pretty much zero.
Speaker 1:So I think anybody trying to look for a deal right now, anybody in the audience looking for a deal as of right now maybe things change in 2026 when you're listening to this episode, who knows? But as of right now, we should not look to that time period to think rates will go that low. There's no reason for it, at least right now. So where we are is where we are. But have any lenders? What's their appetite? How's it shifted, I guess, in the last 12 to 18 months? Because 2024, I think for a lot of folks was a rough year I know it was for us in the storage industry, looking for deals and development or whatever. How has the appetite shifted Like? Are banks still active. You know who's stepping in to fill some of the gap there Lifecos, anybody else I know. You mentioned bridge. You know bridge lending. But debt funds are they active? Like what's that look like and how has that shifted in the last 12 to 18 months?
Speaker 2:Yeah, I think that's a very good, very good piece to cover. So what we've seen recently, in the last 12, 18 months, is that, you know, there were some lenders sideline that have come back into play. So that's a great thing, right? Some lenders that were telling us hey, we're on the sidelines, we're sort of in the defensive mode. Um, some of those lenders have come back into play, come back into the market, and the overall appetite for storage has not waned. You know there's still a lot of appetite for storage lending.
Speaker 2:However, lenders are being more selective. Lenders are more interested in sponsors that are, as we say, well-heeled, well-capitalized. That's not to say new investors can't get into the space. But you know, if you're trying to take down a big, huge acquisition and it's your first one, lenders are really scrutinizing okay, how much capital do you have? Banks in particular looking for deposits, which is not a new thing across history, but a couple years ago banks weren't looking for deposits of 5% to 10% in the bank during the term of the loan, and so I would say the way the appetite has shifted is sort of a more defensive mindset in terms of underwriting. Lenders again are not, they're not buying into the story of we're going to raise rents double digits every year over the next four years and that's how we're getting to the cashflow that we need to be at. Of course, if a deal is early stage and it's 30% occupied, of course they're going to look at, you know, in the bridge context well, what does this look like if we get this thing to a stabilized 88, 90% occupancy? But if you have a deal that is 80% occupied today and you're trying to show, you know we'll say what you said kind of hockey stick growth on rents. Lenders are going hold on. We're not really buying that. This is the rates we're seeing. These are the rates we're seeing in the market.
Speaker 2:The appetite for storage lending overall is still very strong, but lenders are being conservative. Lenders are very tuned into discounts, concessions. That's a question we get on every deal. They're hyper-focused on what expenses are doing and one of the things that we've seen a lot of pushback on just in the underwriting space is, you know, haircutting some of the expense drivers that are. You know, if you're saying, well, we're manning it or we're not manning our store, we're running it remote, they might still plug a little bit of payroll. There are certain assumptions that were once really easy to pass through the lending community that are now more heavily scrutinized.
Speaker 2:But the bridge, like I said, yeah, the bridge market is very active because you have a lot of deals in transition, a lot of deals coming out of construction debt, and so those are non-recourse bridge products. We talk about a lot of deals coming out of construction debt and so those are non-recourse bridge products. We talk about a lot. The CMBS market, we would say, is one of the best places right now. If you have a deal that's stabilized, you're trying to pull some cash out, you're trying to achieve some interest, only additional interest. Only. Cmbs acts as this is a funny way to say this but has acted as sort of a conventional permanent bridge product, you know, and the five-year CMBS product has really come into focus.
Speaker 2:But then all the same capital sources that we talk about are still active. But one notable thing is the SBA, which was always an 85 to 90% product and it was a great thing for new storage investors getting into the market. That didn't have a lot of capital. They're having trouble getting to 90% and in a lot of cases even getting to 85% at the rates of the day. Those lenders price typically off of prime and with prime at 7.5% you add a little spread in there and those deals that maybe worked at 6.5% a couple of years ago a spread over prime when it was at 5% those deals don't work as well at 85% or 90% leverage when you're talking about a stressed interest rate of 8.5% 9%. So appetite remains high. But that's a really good question. All of those capital providers that we always talk about you and I and I talk about clients are still in the market but a more scrutinized approach on the underwriting and they're being more conservative for sure, compared to just a couple of years ago, three, four years ago.
Speaker 1:Are any types of storage deals getting I know we're talking about what's getting financed in general maybe a little bit of conservatism around expenses, maybe they add a little bit more in where you want to. You know, maybe remove a little bit because you're going to run it remote or whatever. Are there any deals that are just flat out being passed on at this point in time, any like market specific deals, region specific deals, or just you know what kind of deals are getting passed on? Yeah, absolutely.
Speaker 2:It's a great question, and one of the things that comes to mind immediately for me is a metric that I have a love-hate relationship with, but you know the old net rentable square feet per capita saturation. I think there's definitely a story around. Even if a market has high saturation high and by that I mean high density of storage compared to what would be the benchmark demand Markets that have elevated supply we're talking double digit supply. Those are oftentimes, even if I see them as pretty good deals and I say, hey, there's really good occupancy in the market Lenders are struggling with those deals because if they're not stabilized, if they're not occupied, bridge lenders, for example, say, hey, we don't know if we see a path from getting from 20%, 30% to 85% over the course of the next two or three years, especially on bigger size deals. So oversupplied markets are definitely a contentious not contentious, but a more difficult conversation to have with lenders because they're saying we have to have an exit right. A bridge lender has to be able to say can this go to permanent debt in two or three years? And then another piece that is difficult is deals that are pretty well occupied but flat rents or rents that are depressed and down from where they were a couple of years ago. Lenders saying, hey, if this doesn't cover at a 135 DSCR, going in and even if there's a recourse guarantee on there, again the exit. What's the next move? So I would say not.
Speaker 2:A lot of deals are just being passed on outright because, hey, we don't like storage, we don't lend on storage. A lot of lenders love storage, but those stories where deals are in transition, uh, you know, again high leverage deals like in the SBA you get. You get a lot of lenders telling you which is good for the borrower. Uh, to just know upfront hey, we, we can't get there, we can't get you an 85% leverage deal.
Speaker 2:Because a lot of the deals that are sort of struggling and you're seeing some stress now are deals that are coming out of SBA 85% debt that started at 475 rates and those rates, if they were floating, moved up to eight and a half 9%. Lenders are being very thoughtful about what they're deciding to lend on in some of those spaces. Now, to flip it on its head, deals that are not being passed down, deals that have good cashflow and strong DSCRs today, can still get an awesome execution. It's those deals that have a story to them, whether they're coming out of high leverage debt or coming out of construction debt, and they're not really where they need to be today. Those are some of the tougher deals to get through the market. So, to recap, markets that are oversupplied are definitely difficult right now to get through the lending credit, the credit box, and then deals that are in transition as well.
Speaker 1:That's a good point, man you met. You talk about the square feet per person which, um, you know is obviously most folks in the industry have a love hate relationship with that metric. There's a lot more to a deal or a location than just the square feet per person, as you mentioned. But it's interesting, man. Uh, I was looking at a deal for a friend of mine the other day or earlier this week and it turns out it's in a great spot, great market, great location. I don't want to give too much away but I looked at it on one of those storage, actually on Radius Plus because they're sponsoring the podcast for this episode or for this month. But yeah, it had call it 900,000 square feet of existing storage and another 400,000 either under development or expansions within a five mile trade area. So they're adding nearly 50% to the market of the existing self storage to the market.
Speaker 1:And I told my buddy I was like I don't think this is a good idea to develop in this market. It's going to be pretty tough. You can always send it to Extra Space for Proforma and kind of see what they might say to you or public or whoever, but I just don't think it's a good idea and I look at more deals like that and I see, like man, every deal has at least in a good market has three or four or five construction projects either just opened up or are under development or in planning or whatever it might be, and it's hard to kind of justify that. I'm rambling here for a quick second, but just a last point. I've dialed it back and I do look at that metric a bit more than I did in the past.
Speaker 1:In the past we've done some deals where it was, you know, mid-teens feet per person and we felt comfortable with it for a number of reasons. Maybe there's new housing or whatever it might be. But in today's environment I don't think I can justify fully again unless there's some story there that I don't know. But it's hard to justify that that market really needs another facility when it's already at like 15 feet per person. I just don't see that story panning out again unless there's some, uh, good, good, there's a major development nearby, major housing development nearby, you know whatever the story is, or three of them. Uh, that might make sense, but yeah.
Speaker 2:Okay, wait, if I could say one thing, because you you just brought another great thing to mind, which is deals that are sometimes getting passed down. That I should make a note of is developments are more challenging. We're doing a ton of construction financing right now, more maybe than we've done in the past, and we've got some deals that are really strong. There's still five net rentable square feet per capita. It's a growing market, but that is absolutely a challenge when you have a deal that, hey, it looks pretty good as is, but then you're going to build a deal and there's two other developers within a five or a 10 mile radius that are bringing square footage to the market going.
Speaker 2:You know, none of the existing stores are super well occupied right now. Why would we, why would we believe the story that this market needs not just one but two or three more stores? So that's another. Really, a real challenge in the market is developers, who are sometimes pretty far down the road, and they, you know it's hard to get financing, but we do tell people a deal that doesn't get done because it's not a good idea, the cost of what you already did and what you, you know, the due diligence and the dollars you have in the deal now is a better exit than building a deal that then is going to be 30% occupied after two and a half years because you can't get the bodies and people in the door not the bodies, but the tenants in the door. So, yeah, we hope we're not storing that.
Speaker 2:but that is definitely another place where there is where there is some choppiness is trying to get deals financed in really high saturation markets or markets that maybe don't have a lot of saturation. But the lender says, well, hey, if there's 8,000 people within a three mile radius or a five mile radius, that's not. That doesn't make us super comfortable, that there's a ton of demand here, so that's another really good point yeah, absolutely man.
Speaker 1:So switching gears for a quick second, moving forward just kind of some practical, you know, financing considerations for folks that are looking, hoping to get a loan for their deal. When somebody's coming, when someone is coming to you for financing, what do you want to see in their pitch or in their package? How do you help them? Kind of craft that. What do you want to see from those sponsors?
Speaker 2:Yeah, absolutely so number one I would say the experience. If they've done it before, if they've operated storage, that's a great first step. That's not to say that someone that's coming into the market that's new can't get a deal financed. That does not. That's not to say that someone that's coming into the market that's new can't get a deal financed. But you know, if you're doing a development deal, lenders like to see experience. If you're doing an acquisition of a deal, that's you know, just got some value add. First-time sponsors absolutely can get. You know, get deals financed. We get those deals done all the time.
Speaker 2:But detailed business plan what are you planning to do? What technology are you adding? How are you maybe taking this from a mom and pop operation to something more institutional? How are you covering and understanding the market from a competitive standpoint? Did you do your homework? Are the rates in the market compared to what you're thinking you're going to achieve? Can the lender go out on a CubeSmart website or whatever? The competitors are in the market and can they see that the rates in the market are what you're projecting Detailed?
Speaker 2:One thing that I think is really important right now it's the whole ECRI conversation existing customer rent increases I think Extra Space coined that term. Understanding what is the actual rate, what is the? You know, if there's a 10 by 10 that's going for $60 in the market but the crossed out web price is 60 and the normal price is 100, stands to reason that what the existing tenancy in some of these competitive stores are, they're probably not all paying $60. That's an introductory rate, right. But understanding how quickly are they getting to what we would call that stabilized market rent? And so sponsors that have done their homework, understand the market picture, understand market occupancy rates, all of that that's really important. And then, just in general, a sense that the developer or the borrower or whoever it is, has done their homework, understands the market and really has a detailed business plan. I think the days of well, we're going to buy this, it was mom and pop, we're going to operate it better. That doesn't hold as much muster as it used to. So having a good pro forma from an operator that's going to manage your store for you, and then again just going to this borrower side from a personal standpoint or a personal financial statement standpoint, do they have the liquidity, do they have the net worth to support the deal?
Speaker 2:An important metric I just want to touch on is when someone's going out and they want a $5 million loan. A general barometer outside of maybe the SBA, where there's a little more flexibility general barometer outside of maybe the SBA, where there's a little more flexibility a general metric we tell people is lenders like to see net worth of about one times the loan amount. So if you're looking for a $5 million loan, the combined sponsorship group having net worth of about 5 million give or take and then post-close liquidity of about 10% of that loan. So if you're trying to get a $5 million loan and you have a million dollar net worth and you have, you know when you, when the deal is closed, you're going to have 50,000, $70,000 left over unless that deal is cash flowing very strong today, which those deals are not.
Speaker 2:You know your run of the mill deals. There's a lot more deals that have a story to them. Those are a little harder to get financing. So, right-sizing, if you're looking for a property and you have a million dollar net worth, you need to be targeting maybe a deal that has a valuation of one to 2 million, maybe not six, seven, 8 million, because that's a harder deal to get past a bank's credit box if you don't have the financial viability for, if anything goes wrong, if the store doesn't lease up as quickly as you need to, especially deals that have interest reserves and working capital needs. So those are some of the really things we're seeing.
Speaker 1:You mentioned something about. You said sponsorship groups. So let's say you individually don't have that net worth or liquidity, could you bring on a partner or two and form like a joint venture or just whatever general partnership and say let's get the deal done, you bring in a money partner in essence. Is that possible? Absolutely.
Speaker 2:Absolutely that is. That is something that very much is is, you know, prevalent in the market. So we're talking to people and if we start getting into the conversation of, hey, we're going to ask you some very frank questions now, what's your net worth and liquidity look like, what is the net worth and liquidity of the sponsorship group? And someone says, well, I've got a million and a half dollar net worth and this amount of liquidity. And we say, okay, well, if you're looking for a $4 million, $5 million loan, do you have partners? And a lot of time the conversation goes to well, yeah, I have a partner who's going to be in the deal and typically, if that net worth and liquidity is going to be counted for the greater global sponsorship group, that has to be someone that's signing recourse alongside the person we're talking to.
Speaker 2:So if you have a combined net worth and liquidity across a sponsorship group that's higher at that level, then yes, absolutely that counts. But if you have an LP partner who's not going to sign on the debt, it doesn't matter if that person's worth a hundred million. If they don't have the lender, kind of doesn't have the clause, I shouldn't say it doesn't matter. It may in some cases. But if they need recourse carve-outs, they're going to say, well, this has got to be something where the sponsorship group that is going to sign the recourse carve routes has to have that net worth and liquidity. But absolutely, if you're bringing in a partner and you're both on the hook, or two partners and you're both on the hook, then yeah, absolutely that counts into that equation.
Speaker 1:Okay, perfect. And then what are some mistakes that you're seeing sponsors make when they reach out to you for a loan or are looking for something to help finance their deal? What things are they kind of missing? It's probably some of the things you mentioned, but just um, if you can kind of uh describe that for us, some mistakes that they're making Absolutely A couple, couple of things.
Speaker 2:I would say that maybe aren't mistakes but misconceptions is, you know, we do see some people coming in for the first time in the industry that are really adamant about we're going to self-manage Fine, and some people are very successful at self-managing. Some people that are they live 10 minutes from the property, sure, and that's a different story. But if they're trying to do that remote concept from afar, they live in Florida, they're trying to buy a property in the Carolinas or something like that, and they're trying to remote manage and it's a store that needs kind of the TLC of having a body behind a desk saying, hey, we're renting units. That's one thing. The other piece is people looking into trying to get as much leverage as they can. Obviously, people like to use debt as they can, but if the deal at a higher leverage and the rates of the day doesn't work, it might be time to look yourself in the mirror and, like you said earlier just a minute ago, bring it in a partner so that you can bring a little more equity to the transaction. And then mistakes that I see, and this is not just relevant to this market where rates are higher, but even at times when rates were lower and almost maybe more so is the assumptions in the deal where the rates are going to go, what your expenses are going to do. We see it all the time where someone brings us a deal and they're really confident about where the tax bill is going to be and then all of a sudden you get into it and an appraiser gets involved and you thought your tax bill was going to be $90,000. And the appraiser says well, it looks like it's about to get reassessed and at the current value it's probably going to be a $150,000 tax bill across expenses like taxes, insurance, payroll. Those things are places we're seeing it.
Speaker 2:And then another piece is trying to get, and I understand the logic on it, because if you think that a management company that provided a pro forma for you isn't being as aggressive as they may need to be trying to take a management pro forma that was prepared by someone and we grew everything by 15% and we made their lease up projections faster, that's fine. Except that if that doesn't happen and you get into a deal based on assumptions that are more aggressive than what's happening in the market, the only person that really hurts is you, the borrower, you, the developer, you, the, whatever you name it Because if you don't get there and let's say it's a construction deal and you don't appropriately budget for interest reserve working capital, the only person that's really going to hurt is you, because at the end of the day there's going to be a capital call. The lender is going to say, okay, you're out of interest reserves and you're not where you need to be, you're not covering your debt service where we thought you were going to be after two, three years of operations. So, assumptions around, ramp up, lease up, rental, growth expenses, all of that, those are some areas. And then the final thing I would say that maybe not a mistake, but again just a misunderstanding is knowing when to engage someone like myself and this is just maybe a little bit of a plug for what I do, but I don't mean it to sound like that but someone that goes out and engages four mortgage brokers Well, those four mortgage brokers there's a lot of lenders in the universe, but those mortgage brokers, if they're good at what they do, they sort of know who they should be talking to and a lot of times there's overlap.
Speaker 2:And so if you engage a bunch of people like myself and we all go talk to the same lenders. Well, that lender is going to go. I've seen this deal from two other brokers. At this point we're just going to pass.
Speaker 2:So really making a decision if you're going to use a mortgage broker, pick one. If you're going to go and do it yourself, make sure you cover the market. Talk to more than one lender, because you never know. Is that lender going to tell you, yeah, we can get there, and then they get down the road and they don't have the capital or they don't like the deal for this reason or that? So having a clear cut strategy on how you're going to go forward and find the financing is important. And again, it might sound like a little bit of a shameless plug, but I do think someone using someone's services, like myself whether it's us at the BSC group or some other group we can help in a challenging market. Find financing that might not be available just for your you know standard borrower that has access to calling a couple of banks in the market. We can talk to more capital sources. So those are some of the things we're seeing.
Speaker 1:Absolutely, man. So let's look ahead now for the next. You know, call it 12, 24-ish months or so. Where do you think capital flows for self-storage are heading? You think they'll increase, stay the same, decrease, like what's your gut on it, and we won't hold you to this either. So if something changes, we won't get mad at you. But where do you think capital flows are heading in the next 12 to 18 months for storage?
Speaker 2:Okay, yeah, I think what I have in my mind is that, going back to what I said before, is, if a deal works today, I think it's a good idea to really take a serious look at, you know, whatever you have in front of you, whether it's in term sheets for some banks because I don't think. I think there's a chance that rates come down, a some rate cuts coming this year, but I don't think what people should be doing is sitting going. Well, rates are at six something percent today, or whatever the rates that they're getting today, I'm going to wait till they're at five and a half because then you might miss your window. So I think, overall, I think there's some rate movement on the horizon and we could see some cuts. We could see some slightly lower rates than we're seeing today. But I think the signaling that we've gotten recently the Fed meeting last week, compared to a year ago when everyone was like, oh, the Fed's going to cut rates four times in 2025. Well, guess what, here we are in March and we're at our second meeting, maybe third, where they've said we're holding steady and they're bringing up things like we don't know, tariffs, uncertainty around inflation so there's a good chance that the Fed cuts rate this year, but there's probably almost an equal chance that we hold well into the year before we see any rate cuts and then it becomes well, are there rate cuts in 2026? We don't know. We don't know what some of the geopolitical risks out there are going to do.
Speaker 2:But the overarching theme I would impart on people is if a deal works today and you have a need to finance, take a serious look at what your options are, because there's probably a good chance that what you can get today is going to look pretty good even across the next 18 months.
Speaker 2:Now, if you have the benefit of hey, I thought about refinancing, but I don't really need to for the next three or four years, sure, you have the benefit of maybe waiting a little bit, but if you have an impending 12 months from now, refinance, it might be good to take a look and say should we take a look at this today and try and I don't want to say cut our losses, but insulate any more interest rate volatility, because just as easily as lenders are out there today and there's a bunch of capital available in the market, it could dry up. It could be a situation where, in 12 months. Lenders are going. There's too much uncertainty. We're sidelining ourselves. So that would be. My takeaway is today, rates are still pretty good. They're not what they were in 2020 and 2021, but that was a bit of an anomaly. So if your deal works at today's rates, it's worth taking very serious consideration if that's a deal you should go forward with.
Speaker 1:Yeah, you shouldn't wait on that. What do you think needs to happen for, maybe, rates to go down a little bit, to have a little bit more optimism? In that you mentioned some stuff with inflation and other things. You just feel like we need some stability in the marketplace, at least from a maybe political standpoint or governmental standpoint or whatever. What's your take on that in order to get rates to come down just a little bit?
Speaker 2:Yeah, I think the Fed has signaled that there's some uncertainty about what inflation is going to do. And that's part of their dual mandate, you know, controlling inflation and unemployment not controlling but reacting based on unemployment and inflation and they've basically signaled some potential headwinds of we don't know what's going to happen with inflation, with these potential tariffs and other things. Right, I mean, people are still out spending money, people are, you know, kind of propping up the economy. People are still, you know there's a lot of capital flow in terms of personal consumption. So if inflation cools down, that's when you start to see the Fed feeling like they've got ahead of that battle and that's why we saw some rate cuts because inflation was coming down. But we don't. We always say we don't know what, we don't know and we can't forecast. No one has the crystal ball. I certainly don't, or I maybe wouldn't be a mortgage broker. I'd be on an island somewhere because I would have made a bunch of really good trades based on what I know is coming. So we don't know what's going to happen, but the dual mandate from the Fed is such that inflation and unemployment have to be at a level that the Fed is comfortable with to cut rates. And so until we see that, until we see data that is consistently telling us that's what's happening in the market, the Fed's not in a huge rush to cut rates, because that can be, even though for the person trying to get their storage deal financed, they're not thinking about that person going. Well, this guy could really benefit, or this gal could really benefit from lower rates. They're kind of looking at the global picture, so we don't have a lot of clarity on what's to be seen in the future. So I think rates could come down, certainly from where they're at a little bit.
Speaker 2:And then the other side of the equation on rate pricing, I just want to mention this is there room in spreads, credit spreads? So you take the five-year treasury, for example, is your index, which sits at about 4.1 today, and if credit spreads are 200 to 350 over the treasuries, could those come down? Yeah, because there's been a time where those were in the 100s and the low 200s really consistently. So there's room for rate decreases in the market, but it's hard to again forecast, when that really happens, how that flows with the volatility we've seen in a lot of the indexes that move every day Different from the Fed, the Fed rate, which is basically when the Fed decides to cut or raise rates. That's when that moves and then SOFR and Prime, sort of track and lockstep with that.
Speaker 2:But treasuries, the FHLB, these other indexes that rates are priced off of, there's been so much volatility. One day it can be the five years under four again and then it'll pop up to 420 or down to 410. And there's a lot of up and down. So those indexes there's still a lot of volatility and so it's harder to you know to handicap where we're going to be in the future. But that I didn't really answer your question, other than saying it's hard to know.
Speaker 1:But I think we have to see some real stability to get there. Yeah, we might see some, you know, alleviation of pressure, like you said, credit spreads and all that kind of stuff. We could see that. But I think the advice you gave is really good. You know, if you have a decent loan excuse me, term sheet now, if you have a decent deal that you can get financed now, it's worth pursuing that versus waiting.
Speaker 1:Oh, I'm going to try and time the market. I'm going to wait six months and see what happens, because you're right, there's a little bit of uncertainty there. Maybe there's a lot for some folks, but there's uncertainty there and we don't know where things are heading and how the tariffs will play out and how that's going to affect inflation, which thereby directly affects what the Fed does and obviously employment too. So there is uncertainty. If you have something that you have, like you said, bird in the hand is worth two in the bush. You got something in hand, just go with it, whether it's by 20 basis points, I mean that's not really going to, unless it's a massive-sized loan. It's not going to really. It does something, but it doesn't do as much as we think. You can kind of outweigh that difference with your rates and kind of your management expenses?
Speaker 2:et cetera.
Speaker 1:Okay, perfect man, let's wrap everything up with the final four questions. Really Okay, perfect man. Let's wrap everything up with the final four questions. Really appreciate you sharing that knowledge and information, adam. But what's one?
Speaker 2:piece of storage investing advice you would give to your younger self? Yeah, I think the biggest thing in the space that I'm in. I'm a very big proponent in networking and so I think I do a good job of that. I know a lot of people. I've met a lot of people. I've met some people through your show. I've met people speaking at conferences, but just meeting people in various walks of life, so not even just for me at borrowers, right, people who might have a capital need, but knowing people on the title side insurance you know consultants, builders, you know lenders, things like that and really knowing your product base, knowing what's available out there, and always meeting new people, because you never know what it's going to lead to. You might take a meeting that you're thinking, okay, is this going to be any good, is this going to be worth my time? You might leave that meeting going. That was the best meeting I've had in two years.
Speaker 2:So for a younger self like my younger self, and for younger people in the industry or for anyone in the industry, you know, within reason, always take the meeting. You know, learn from people. You can always meet someone, and someone that you meet might be a jumping pad to meeting someone else, because you can never know too many people. You know, I mean, I always joke, I've got enough friends. But in the business world, you, you know, you can never know too many people and you never know where a relationship or a, a meeting or a coffee or something is going to go somewhere.
Speaker 2:And I've had it. Someone comes out of the woodwork that I talked to four years ago and at that point they weren't ready to work with me, they were just getting into the industry or they were. You know, they didn't have a capital need at that point. But always, you know, growing your network, growing your, you know the people you're talking to and, um, and then another thing, and this might get into another question, you have, but, you know, absorb resources like this, watch podcasts, learn from people who know, and I wouldn't. Maybe I'm a financing expert a little bit in storage, I don't like that word, but that's what I do, you know, talking to people who know, uh, that's another thing. So that's that's something else you can gather from networking with people is is always growing your knowledge base.
Speaker 1:Absolutely, man. I think the network is important. That's what, like a podcast or just putting yourself on LinkedIn or whatever it might be. It puts you out there, and so by putting yourself out there, more people hear about you and I think that increases your.
Speaker 1:Somebody said before it increases your luck, surface area right you never know who you're going to meet or talk to and something comes up that becomes very valuable later on. So yeah, a hundred percent man, some relationship comes up or develops, that's very valuable later on. If you could change or solve one challenge facing the storage industry maybe in the finance world, but management or whatever.
Speaker 2:What would it be? I wish I, I wish I. Well, I'm going to say one is kind of a joke, and then I'll give you my real answer I wish I could. I wish I could lower everybody's insurance costs, because everybody's been crushed by property insurance costs. But yeah, that's a, that's a wishlist that I can't do anything about. I think if I could, if I could change something, I think the it's, it's getting there and there's been so many great resources.
Speaker 2:But the availability of data. One of the things we always get asked as a mortgage broker is well, what's market occupancy? What are all these stores? How well occupied are all these stores that are in this particular subject's competition? And I think some of the groups, like Radius, has some availability of some of that data if you're on their network. But I wish I knew more.
Speaker 2:I wish I could find a way to create more visibility in that space, because it would make demystifying for example, a concept we talked about earlier, the net rentable square feet per capita situation easier to understand.
Speaker 2:If there's 10 net rentable square feet in a market but I have the golden goose and I know that all the other stores are 92, 93, 95% occupied it's an easier story for me to tell to the lenders. And then, conversely, if I know that there's 10 or unruly square feet in the market but all the stores are 72% occupied, I could be much more helpful to my client and say, hey, this is probably going to be a tough deal for you to get fully leased up, or even if it's already pretty well leased, it's going to probably be hard for you to push rates. That's one thing that I think there's some more information on that. In other asset classes and storage, we don't have as much visibility on market occupancy and competitive occupancy rates. You can only gather what you can gather from again, a public storage extra space or some other operator's website. So that's one that I wish we had more clarity on.
Speaker 1:Yeah, that's a really good point and there's a double-edged sword to that. So if you know that everything is really fully occupied in a market that might invite more development, but at least you can get an idea of what that market looks like and then converse. Like you said, if everything is at low occupancy it would prevent development. Hopefully it would prevent development from happening and then those stores can get full. So there's a trade-off there. But I think you're right that occupancy information would be extremely helpful in our industry. But hey, we can always wish right. Give us a good resource If someone's looking to grow their business, their personal life. It doesn't necessarily have to be storage, investing related, but a book, podcast, a conference, youtube channel, whatever. What's a good resource for those looking to grow in their business or personal life?
Speaker 2:Yeah, I mean, chris, this is going to be a plug for you, but listening to resources like this and the varied guests you have on your podcast, I've listened to, I've been a guest, I've listened to some of the great people that you've had on this show. I've met people through introductions you've made. So podcasts and things like that are such a great digestible. You can put it on while you're driving, you can put it on while you're on a plane. So that's one resource, and then another one I would be remiss to not mention is something that the Self-Storage Almanac, which we write the finance section for again maybe another shameless plug, but it's a great resource. So anything like that that you can get a hold of publications that are talking about what's going on in the storage market.
Speaker 2:The Self-Storage Almanac, of course, is a little bit static because you write a bunch of sections. It gets published, but it's really good data. It can help you understand operations, valuation, finance, marketing, the net rentable square feet per capita thing that we talked about, but then some of these other groups that publish live let's say, quarterly or monthly reports on here's what the REITs are doing, here's how the industry's tracking, getting your hands on as much of that data as you can to make informed decisions. It can be as simple as a report like that could tell you that one of the markets you're trying to buy into or develop into is really oversupplied or it's a really fantastic growth market, you know flipping on its head. So podcasts, definitely, and then also those industry reports are really useful and I digest a lot of that because it's very important in what I do.
Speaker 1:Absolutely, man. This Almanac played a key role in me understanding the industry a number of years ago, so it's a great resource for a lot of folks. So thank you for sharing. How can listeners get in contact with you if they are looking to get a loan sized up, if they need some help, some advice on getting a loan, some direction, et cetera, how can they reach out to you?
Speaker 2:Absolutely. So I'm on LinkedIn, twitter X, whatever, and then you can send me an email akarnes A-K-A-R-N-E-S at thebscgroupcom. You can look up our website and you'll find our contact page where myself and our other principals are on there. So if you have a question, yes, I encourage everybody to reach out.
Speaker 2:I maybe you know rein it in a little bit on your podcast, but I like to talk and I love talking to people. So I've got, you know, a fair amount of knowledge in the space, and so I would love for anybody that has questions that's listening to this, trying to get something financed, to reach out to us. I think, again, if I can share my contact information some way to your listeners in a little blurb after the episode, but otherwise you can go to pscgroupcom and you'll find our landing page for our contact. And then the other way is I speak on podcasts like this, I speak on webinars, I speak at a lot of the trade shows, and so you can find me there with a cup of coffee early in the morning getting ready to present. So those are good ways to get in touch with me Awesome.
Speaker 1:Thank you, Adam. We'll have all those links in the description for the episode. Appreciate you coming on and talking about self-storage financing. We'll have you on again in the near future.
Speaker 2:Absolutely. Thanks, Chris. It was so great to talk to you and let's do it again soon.