Live Oak Bank’s self-storage lending team has been on a hot streak since its 2015 formation.
The Wilmington, NC-based company finished its 165th self-storage loan in December 2017, reaching a combined $350 million in loans made to company owner/operators nationwide. But lending team leader Terry Campbell said things are cooling a bit.
“I think we’re going to start seeing a slowdown,” he said. “There’s still a lot of interest, but we’re having to look at more deals now to get one that works. There are more deals that come in, but we run the numbers and they won’t work now.”
Why is this happening?
Campbell said pent-up demand for self-storage facilities drove heavy loan activity for a few years. But now, “The pent-up demand is going away,” he said. “We’ve been building at such a mad, furious pace the past few years, and we’re filling in that gap (between demand and supply). So now we have fewer locations where demand meets supply.”
The SBA made the self-storage industry eligible for SBA loans in 2010. Campbell said his team members have the expertise to help those seeking such loans.
“What we’ve been doing for almost three years is to try to be a SBA evangelist,” he said. After the SBA’s 2010 decision, “Everybody got pretty excited: ‘We’re going to be able to build.’ The problem is, all banks can do self-storage loans, but very few banks know how to.”
He claims the SBA program got off to a bad start because “people tried to use it, but banks didn’t understand the industry.”
Live Oak Bank has 16 loan teams, each working only within its area of expertise. Campbell was the first person hired for the self-storage team, and he brought real-world experience with him: He said he’s been involved in $40 million of built self-storage, is about to break ground on one facility and formerly owned another.
“The bank looks for industries with low default rates and growth possibility,” Campbell said. “They do their due diligence on it, and once they decide to go into that industry, they hire someone to run it. I knew the industry.”
The lending team offers financing for purchase, expansion, new construction, refinancing of debt and renovations, from $75,000 to $7.5 million.