Self Storage Facility Loans Australia

Self storage is valued as a going concern in most cases. The valuer takes the income the facility actually produces from storage fees, insurance commissions, box and lock sales and late fees. Operating costs are deducted, including a market wage or management fee even if the owner works unpaid. The resulting net operating income is capitalised at a yield drawn from comparable storage sales. The valuer will usually also report a bricks and mortar or vacant possession figure for the land and buildings alone. On a mature facility the going concern figure is normally the higher of the two, sometimes by a wide margin.

Which figure the lender uses matters as much as the LVR. A lender offering 65% of going concern value may advance more than one offering 70% of bricks and mortar value. Some lenders split the difference, lending a standard percentage against the property and a lower percentage, or nothing, against the business component. Banks also tend to assume a longer selling period for specialised property when they assess security, which feeds into conservative LVRs. Ask about the valuation basis at the start, because it decides how much equity you need.

Trading history is the core of the credit file. Most lenders want two to three years of financial statements and tax returns for the facility, supported by reports from the storage management software. They look at occupancy by lettable area, average rate per square metre, the gap between advertised and achieved rates, average length of stay, arrears and ancillary income. One strong month means little. A steady record above about 80% occupancy, with rates rising each year, is what supports an LVR at the upper end of the range. Seasonal dips are normal and are not a concern if the annual pattern repeats.

Management affects both value and lender comfort. An owner operated facility can be very profitable, but the income depends on one person and the reported profit often excludes their labour. A site run by employed staff, or by a specialist storage management company under a written agreement, is easier for a lender to take over and sell if things go wrong. First time buyers are not excluded. Lenders will look for a credible plan: retained staff, a management agreement, modern booking and access control systems, and a handover period from the vendor.

Building a new facility is assessed as development finance, with one important difference. There are no presales and no pre-committed lease, so the lender cannot rely on either to reduce risk. It relies on the sponsor instead: experience, equity in the project and other income that can carry interest during lease up. New facilities commonly take several years to reach mature occupancy. Lenders often cap debt at around 50% to 60% of the completed value, want a fixed price building contract and may require interest to be capitalised or prepaid. Staged construction, where later stages are built once earlier stages fill, reduces this risk.

Strata titled storage units are a different product. A developer builds a complex and sells individual units, often 20 to 60 square metres each, to small businesses, tradespeople and private investors. For a buyer, the unit is a small commercial strata lot. Values are low, so some lenders' minimum loan sizes rule them out, and many buyers use home equity or cash instead. Where lenders do accept them, LVRs up to about 65% or 70% are quoted. For a developer, the project is funded like any strata industrial development, with presales to unit buyers counting toward the lender's presale requirement.

On serviceability, lenders test whether net operating income covers proposed interest with a margin, and they also look at the borrower's wider position. Loan terms commonly run 15 to 25 years, with interest only periods of up to five years. GST needs early attention: storage fees are generally subject to GST, and a purchase may qualify as a GST-free sale of a going concern if the ATO conditions are met. The guide on how GST works when buying commercial property explains the funding impact. Get accountant and legal advice on GST, structure and any self managed super fund purchase.