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Storage Condo Financing...follow the moneyFINANCING I should start with telling a little story regarding the financing of my first project. Prior to the start of my first StorageShopUSA™ project, I worked for 15 years as a real estate developer. I completed millions of dollars worth of deals. I had great credit and had a respected tract record. Even with that record, I knew it might take a little extra work to get the bankers to bite on this new concept. I prepared a business plan and gave it to my banker who I had worked with for years. They were a smaller bank about an hour outside of town. When I presented the plan, they liked it. At that time, they didn’t even have residential condos in their community so commercial condos were way outside their comfort range. My banker said to go talk to the banks in Madison. I must have presented the plan to 10 banks. They all said “that is a great idea….but we haven’t ever done anything like that before”. Some of the bankers would say “do you realize how much office/warehouse space is for rent out there?” It didn’t even help when I told them I was selling them instead of renting them. This process took at least 4 months. I convinced myself I should do the project so I called a “hard money lender” from the east coast. His name was actually Frankie (not kidding). They would lend the money but they wanted at least half the profit and charge a really high interest rate. He sounded as if he wanted me to fail so they could take the property. I eventually declined. As a last resort, I went bank to my original banker. I told him what had happened and he couldn’t believe it. I said “you got to do this. I know it will work and I have a plan if it doesn’t”. I asked only for enough money to build 2 buildings. When one of them sells, I could use the money to continue building. They eventually said yes but I had to cut the size of the project in half. I agreed. The rest is history as we sold all the units in 3 months. Today, my banker has no problem financing all my projects. Today, because there is more evidence of success, bankers should feel more comfortable lending on these developments. Because of the success of the StoragShopUSA projects, I believe the bankers will be more comfortable lending to developers that utilize the StorageShopUSA pattern.
How do buyers pay for their storage condo? It is very interesting to note that most of the buyers I dealt with have bank finance the storage condo however; the loan is collateralized by their business, rental property, other assets and many times their home. When I talk about what kinds of people buy these storage condos , I mentioned that they all have the “means” to purchase. Many times I don’t know where the money comes from because they just bring a check to the title company. Others that do have bank financing, were never even questionable - In fact, I have never requested or received a pre-qualification letter or loan commitment. I take that back, I did receive a loan commitment recently – I think only because of the “banks tightening up” due to the economic woes.
Let’s talk about the economy and how it affects sales. In short, it has affected sales. I will say that we have not lowered our price and we continue to sell units – just not as fast as 3 years ago. Remember, the typical buyer has the “means” to purchase. I think the slow down is just a result of “more caution” being taken by buyers. It is the smart thing to do – our buyers are smart. They also don’t negotiate the price because they think the market is down – I’ve had a few prospects come in and try it but I am not budging. I don’t have to because we are the best deal in town (immediate and recognizable value) and we are in a position to (low risk development strategy of building separate smaller buildings). Financing the projects was only difficult in the beginning and you may have a challenge if you venture into a market that hasn’t seen storage condominium developments before. I do know that financing a development will be easier if you pattern it around the StorageShopUSA model
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