San Francisco-based commercial mortgage banking firm Gantry Inc has secured $364 million in refinancing a portfolio of 15 self-storage and industrial assets of real estate development and investment firm, The Ezralow Company.
The assets of the Southern California-based firm, helmed by CEO Bryan Ezralow, include 12 self-storage assets of 1.8 million square feet and three industrial properties of 428,000 square feet. The Los Angeles properties in the portfolio are located in West L. A and Culver City.
“Gantry did a good job of executing this refinancing at a time of historic lows on interest rates,” said Ezralow. Current interest rates are vital for any firms operating in self-storage to refinance their portfolios and leverage the situation. The Fed’s stance has largely been accommodative and has maintained a low-interest-rate environment through the pandemic. Businesses in the self-storage sector are using the opportunity to get their existing assets refinanced. Talking about Gantry’s efforts, Paige Serden says, in the LA Business Journal, that the firm brought down interest rates and refinanced the asset to fetch a significant value.
Four life insurers have provided the loans for the refinancing of the properties. Insurance companies have historically played a vital role in both commercial and multifamily lending markets as they offer long-term loans to a wide range of properties. The loans were structured by Paige Serden, Peter Welsh, Braden Turnbull and Josh Natker, belonging to the Los Angeles production office of Gantry Inc. Mortgage bankers play an intermediary role between the insurers and the borrower.
The Ezralow Co. didn’t want to take the pool finance route. The firm was looking at separate, individual loans. Typically, lenders prefer pool financing because it helps them get collateral coverage, Serden specified. However, the self-storage and industrial assets firm did not want the drawbacks in a specific asset to impact the value of another. The Ezralow Company also did not want any of their properties to serve as collateral for each other. This meant that Gantry Inc had to guarantee different maturity periods for the separate loans.
Factors that influence refinancing of self-storage
The factors that typically affect self-storage refinancing, apart from low-interest rates, are timing, entry barriers and location of the units.
Gantry’s Serden said the process’s timing was perfect, around the end of August and the beginning of September. That was the time the capital markets had begun to wake up after a breather, she said. Talks with the self-storage and industrial assets firm had been put on hold earlier because of the Covid-19 pandemic and regulations around it. “Timing is everything in our business and there has never been a better time to finance all types of real estate,” said Bryan Ezralow.
Resilient through the pandemic
Reports have shown that self-storage continued to be resilient during the coronavirus-related recession. Though the self-storage sector is known to be recession-resilient, a key reason for the resilience even during the pandemic is urbanization. For example, renters sought to move in with families back home when the Covid-19 numbers began to rise, and they needed storage spaces to store their belongings. Self-storage also benefited because the costs of development for businesses are much lower than multifamily development costs.
In the second half of 2020, the self-storage sector showed resilience with a net increase in demand for self-storage, and vacancies fell to a low of 7.3 percent in the Q3 of 2020, according to a Marcus & Millichap research report. As vacancies fell, rents went up and the sector improved.
Location and entry barriers matter as well
Self-storage, according to Serden, is an asset that performs quite reliably most of the time, but a lot depends on the location. She noted that the better-performing storage units are in dense regions. Serden also explained that storage as an asset was resilient during the previous recession. What also works in favor of the asset is that operational costs are low. Location is, however, a very critical aspect and that worked well for the 15 properties under refinancing.
Serden said finding locations where there are barriers to entry was also important. The Ezralow Co’s portfolio of assets was largely coastal and came with high barriers to entry, and so getting approvals again was out of the question, she added. This points to the fact that high entry barriers protect existing self-storage portfolios apart from providing an opportunity for a business to enter the market. In that sense, the location of The Ezralow Co’s assets has proven to be a winner in terms of securing the refinancing deal.
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