The following Q&A was completed as part of our conversational Commercial Real Estate FAQ Interview Series, we hope you find it helpful.
When looking for bank financing in the self storage industry, it’s important to never fear getting creative. If you don’t have the sort of net worth that allows you to sign on your mortgage, you can find a partner that does, and they can aid you in getting the deal accomplished. However, when working with partners, it’s equally important to remember your loyalties and to make these deals worth their while.
Richard Wilson: In your experience now working with banks of all types and sizes, what are the three keys to getting bank financing in the self-storage industry?
John Manes: I’m going to go back to your first question where I said people need to pick what they really want, right? So a lot of my peers in the industry love CMBS style money or what I call Wall Street type of money which is non-recourse and you’re only signing on carve outs and stuff like that, that’s that waters that we had to wade through early to try to figure out what it was that we wanted. We realized that’s not what we wanted, and in the end it actually worked out pretty good for us because, tying that back to the pandemic conversation, CMBS style money instantly dried up because of what happened and we were still buying deals. I bought a deal in June, and got it financed, right? So, a couple points that I would make there is – 1. Pick the horse or the style of the bank you want. We like local, mom and pop, credit unions, those type of things because of the flexibility in some of the terms, you know you can get better interest only, interest rates might not be as competitive as CMBS style money but we have the flexibility of either refinancing, or getting out in 3 to 5 years where CMBS style money is 10 year. So, some of those things are key to understanding what it is you’re trying to accomplish. For us, it’s all been credit unions, small banks, relationship style banks.
As far as getting the actual loans, having somebody that can sign on the mortgage. First deal that Robbie and I did, we didn’t have enough signing power so a buddy of mine had a doctor, so we gave a piece of the pie away and he became our partners and he signed on the debt with us and what we did for him as a trade off to that, not only did he get a piece of the pie, but when we went and refinanced it after we gained enough net worth to sign on our own debt, we took him off the loan and left him with his same percentage. So, he took us to the dance, we’re going to be loyal to him for taking us to the dance. And that was the first deal Robbie and I did is – we had no net worth. We didn’t have any money. How do you get it done? You bring in people that can get it done, and you don’t be greedy and you give away stuff in order to get it done.
So, first, finding the right types of banks, secondly finding the partners that can help you get it done. Third is once you do find those banks, continue to be loyal to them and build relationships with them. And I realize some of them only have like a $6 million limit, or a $10 million limit, so what we do is we refi them out after 3 or 5 years, take somebody else that’s willing to do that loan, and then we do a different loan with them and we stay loyal to those kind of banks. Most of our banks are depository banks, so where we possibly can, because we’re an operating business as well, all of those deposits go into their banks. So even when we skip the loan and refinance it, we still send them our deposits knowing that we’re going to go back and still have a relationship with them later.
Richard: Right, right, yeah that’s great. I love how you pointed out the need to be creative and not have anything skew, so like “Oh, I’m not worth a lot of money so I can’t do anything.” You guys rolled up your sleeves and figured it out, and you just make it seem practical the way that you put it like that. You know one of my marketing mentors early on was Frank Kern and he would come into a conference with people all in their suits and he’d come in his flip-flops and his board shorts and he would say “Look, if I can do it, you guys can do it. Because I’m not some fancy Wall Street guy.” It’s not that hard, it just takes a lot of hard work, and it reminded me of that when you talked about that just creative ways to get the deal done, I think that’s awesome.