ates are down—until they’re up again. Does this sound familiar?
If you’ve been watching mortgage rates over the last few years, you’d probably agree that it has become very difficult to see any consistent movement in one direction or another. Mortgage rates drop one week, spike the next, then dip again—only to bounce back. In the self-storage financing world, where deal timelines can be tight and financing options are increasingly diverse, this interest rate rollercoaster can be frustrating.
Here’s the simple truth: Trying to time the interest rate markets is somewhere between extremely difficult and impossible. Rates rarely move as expected, or when needed. Instead of trying to predict what’s next, smart self-storage investors are using conservative rate assumptions—or a range of rates—when evaluating their next opportunity to ensure their investment goals can be met despite reasonable rate variability. If rates happen to be lower than projected when it’s time to close the loan, all the better—but don’t count on it. Time is much better spent focusing on specific financing goals, understanding the different types of lenders, and knowing what each offers to find the best fit for your business plan.
Let’s break down how today’s market is behaving and how you can navigate the self-storage lending landscape with more clarity and confidence, regardless of where rates head tomorrow.
Since that time, many self-storage buyers and sellers have been on the sidelines with the hope that interest rates will come back down. While the Fed cut rates a few times in 2024 and inflation has shown intermittent signs of cooling, commercial interest rates have not come down much, and the path for rates in 2025 and into 2026 remains unclear. It’s also important to note that additional Fed rate cuts do not guarantee that U.S. Treasury yields will follow suit. When the Fed Funds rate was reduced in 2024, the yields on the five- and 10-year U.S. Treasuries (the primary fixed-rate indices used by commercial lenders) actually increased!
Many factors can and do affect U.S. Treasury bond rates, and they seem to arise with increasing frequency. Economic event risk and the overall level of uncertainty are extremely high today in the U.S. and across the globe. Factors including geopolitical instability, tariffs, and U.S. fiscal policy will very likely continue to drive interest rate volatility. A surprise inflation report, a shift in employment data, or another unexpected global event can swing rates overnight.
This uncertainty leaves many self-storage owners and investors asking the same question: Should I wait for a better rate? Too often, the answer is no. Many investors miss out on the right deal, at the right time, while waiting for a hypothetical “perfect” rate. The reality is that the perfect rate rarely comes when you need it.
After roughly three years of waiting for a lower interest rate environment, the most active self-storage buyers, sellers, and developers are now incorporating today’s rates into their business plans. Operators are focusing on strategy with today’s rates in mind, not on speculation. Instead of asking whether rates will go down, they are asking what loan structures and which lenders best fit their plans right now.
Banks currently hold over 50 percent of the nearly $6 trillion of outstanding commercial real estate debt (according to Trepp) and remain the primary lenders in the self-storage industry. Banks provide approximately 80 percent of all commercial construction loans and are still the go-to lender for most self-storage developers today. While they have become more conservative and capital-constrained over the last few years as rates have risen, community, local, and regional banks are often the first stop for many self-storage investors. Typical bank loan terms are between three and seven years, with a 25-year amortization and a maximum loan-to-value (LTV) of 75 percent. This LTV is usually subject to a minimum debt service coverage ratio (DSCR) of 1.25 to 1.35, which, with today’s higher rates, often limits loan proceeds to 60 percent to 70 percent LTV. Construction loan proceeds are generally limited to 65 percent to 70 percent loan to cost (LTC), requiring the borrower to provide 30 percent to 35 percent of total development costs in equity. Banks underwrite borrower creditworthiness and financial strength as much as the underlying real estate asset and, with very few exceptions, require personal guarantees.
Credit unions are often overlooked but can be excellent for smaller acquisitions or owner-operators. They are becoming more familiar with the self-storage asset class and offer terms similar to banks. Unlike many other lenders, credit unions often do not impose prepayment penalties—a clear advantage if rates fall during the loan term. While some credit unions offer construction loans, many have limited capacity and are generally not a good fit for larger, more complex deals.
CMBS, or commercial mortgage-backed securities, can be a great source for competitive, non-recourse, fixed-rate debt. Unlike lenders who hold loans on their balance sheet, CMBS loans are pooled together and sold into the capital markets as securities. CMBS underwriting focuses primarily on the underlying real estate and cash flow, with less emphasis on borrower financial strength, and is best suited to properties with stabilized cash flow. Many borrowers also choose CMBS loans to secure a five- or 10-year fixed rate with interest-only payments instead of a 25- or 30-year amortization schedule, which can boost current net cash flow. Because of the interest-only payments and a lower DSCR requirement (often around 1.20), CMBS loan proceeds can exceed those of most other lenders. The main downsides are high prepayment penalties, higher transaction costs than a conventional bank loan, and somewhat impersonal third-party servicing after closing.
Life insurance company loans share some advantages with CMBS loans, such as limited personal recourse, long-term fixed rates, and interest-only payments. Life company lending also focuses on properties with stable cash flow. Unlike CMBS lenders, many life companies will lock the interest rate at the time of loan application instead of waiting until closing. In the past, life companies focused mainly on larger loans in primary and secondary markets, but today many have widened their scope to include smaller loans and smaller markets. For low-leverage loans (50 percent or less), life companies offer some of the lowest rates in the market.
Bridge lenders and debt funds provide speed and flexibility when traditional lenders won’t. They’re ideal for lease-up, expansions, value-add strategies, or distressed deals that need to close quickly. You’ll pay more in interest, but the creative structure and faster timeline often make the deal possible. Just be sure you have a clear exit plan, whether that’s refinancing or selling, as the high interest costs add up quickly.
SBA loans are partially government-backed and can be a great option for newer owner-operators, first-time buyers/developers and/or smaller transactions. They offer higher leverage (up to 85 percent to 90 percent) and longer terms. However, they come with extensive documentation, higher fees, and often a slower closing process, so plan ahead if you choose this route.
Start by considering your goals. Is this a short-term repositioning or a long-term hold? Do you need speed and flexibility, or do you have time to close? Is maximum leverage needed to get this deal done? How important is non-recourse? Do you plan to sell or refinance within a few years?
Next, look at the full loan structure, not just the rate. Prepayment penalties, recourse requirements, amortization terms, and fixed versus floating rates can affect your returns just as much as a small difference in interest rates.
Finally, work with experienced lenders or mortgage advisors who understand self-storage and can hit the ground running.
In this environment, certainty of close, the optimal financing structure, and a lender aligned with your goals are worth far more than saving a fraction of a percent on the interest rate.