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elf-storage investors and owners are facing significant challenges in securing loans from traditional lenders like community and regional banks. Tighter regulations, shrinking deposits, and a growing risk aversion among banks have led to reduced lending activity. The collapse of Silicon Valley Bank and Signature Bank in 2023 exposed deeper problems in the sector.

    Regulatory pressures have added to the strain, with the Office of the Comptroller of the Currency (OCC) pushing for stricter lending standards and higher reserve requirements. As a result, many banks have tightened their lending criteria or pulled back from commercial real estate lending altogether. Some credit unions continue lending, but with limitations.

    The loan-approval process has also become more complex due to smaller credit unions needing to "club up" to fund larger deals. This adds multiple credit officers and slows approvals. Even self-storage operators with strong relationships with traditional banks are now facing exposure limits, making it harder to secure loans.

    As a result, self-storage investors and owners are turning to alternative loan options, including commercial mortgage-backed securities (CMBS). CMBS financing offers several key advantages, including lower costs linked to Treasury yields, flexible terms such as full-term interest-only loans, and easier cash-out refinancing. CMBS loans are also nonrecourse, providing valuable protection for self-storage operators.

    However, CMBS financing comes with certain drawbacks, such as higher closing costs and complexity. Prepayment penalties can be substantial if borrowers want to pay off the loan early. Despite these challenges, experienced loan professionals can help mitigate them.

    Some self-storage operators are using a combination of local bank loans and CMBS loans to achieve sustainable growth. By paying off existing loans through CMBS financing, they free up borrowing capacity with the bank and gain more flexibility to finance future development. This strategy allows them to recover their original investment, maintain liquidity, and manage risk.

    In today's challenging commercial real estate lending market, CMBS provides a valuable pathway for self-storage investors and owners to achieve growth and financial stability. With traditional lenders scaling back, CMBS is not just an alternative but a strategic advantage.