REAL ESTATE NEWS

The self storage sector continues to attract lending activity, but lenders remain focused on managing risk through tighter underwriting and exposure controls. This is according to DXD Capital’s 2025 lender survey, which measures lending sentiment within the self-storage sector based on reporting from banks and credit units actively engaged in CRE finance.

Generous lending practices that prevailed in 2021 and 2022 have given way to a more conservative lending approach today as interest rate hikes have led to asset distress, the report said. This is expected to keep construction lending subdued over the next one to two years across numerous CRE asset classes, but self storage in particular.

More than 94% of survey respondents said the appetite for self storage lending remains unchanged from last year, and nearly three-quarters said they have not restructured or extended any self storage loans in the past year. This indicates overall loan performance has remained stable despite broader market pressures, said DXD.

Most lenders surveyed allocate less than 25% of their total CRE loan portfolio to self storage, the report said. Nearly half said self storage loan performance is on par with other CRE sectors, while about one quarter said the sector is underforming.

The top underwriting concern among survey respondents is absorption risk during lease-up, followed by oversupply, sponsor capabilities and construction costs. Broader macroeconomic and regulatory concerns include interest rates, CRE market softening and recession risk. Regional bank pullbacks also registered as a key issue, the report said.

DXD said these concerns suggest a lending environment that is shaped by risk mitigation and selectivity.

About 94% of respondents said they are targeting acquisition loans, 88% said ground-up construction, 71% said refinance, 35% said bridge or transitional, and 18% are targeting conversion loans for projects such as retail to storage.

Source: GlobeSt/ALM