The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
The typical debt you may be looking at will largely depend on whether you’re looking at a new acquisition or a construction build. Additionally, since the pandemic, large down payments became more critical as the risk of acquiring such assets began to grow alongside higher unemployment rates and uncertain times. Banks will look at your purchase price and the total cost when leveraging certain amounts of debt.
Richard Wilson: In the self storage industry, is 65-75% debt the typical amount among all of your competitors and peers and is that what you kind of underwrite using that assumption?
John Manes: It depends on if its an acquisition or construction. So after March from a construction standpoint people were like “Hey, I want 50% down to build this thing.” Because the risk went through the roof, right? So on ground up development I’ve seen anywhere from 50% to 65%, I haven’t seen anything higher than 65%. On how we do our acquisitions is typically 70-75% of purchase price and somewhere around 65 to 75% of total cost. So, that’s, you can look at it two different ways, we look at it both ways but how the bank looks at it is not your total cost, they look at it as purchase price. And the purchase price we typically leverage 70-75%.
Richard: Right, okay.