By Alejandra Zilak

he self-storage industry has been a profitable venture for many years. And the pot of gold has also extended to niche areas within the storage space: RV and boat, wine storage, art, office space, e-commerce fulfillment, and flex spaces, just to name a few.

But as with any economic endeavor, costs and expenses always have a considerable impact on profits; and with a significant volume of real estate debt becoming due in 2026 and 2027, strategizing for Q2 and beyond means paying close attention to how to navigate these debt maturities. And how the upcoming payments will affect each business will depend on many factors.

The main concern, of course, is cash flow. As long as money keeps coming in copiously, bills continue to get paid without breaking a sweat. Fortunately, the storage industry is still in a good place. “The appetite for self-storage in the lending community remains robust, so there is ample liquidity and plentiful options for deals,” says Shawn Hill, principal and co-founder of The BSC Group, a company that provides commercial real estate financing advisory solutions. “Deals that are stressed due to protracted lease-up and/or other headwinds like rent and occupancy pressure still remain attractive to bridge lenders as well, so long as the overall fundamentals remain intact.”

He adds that there also remains significant demand for exposure to self-storage within the investment community, so deals that are truly distressed due to fractured capital are likely to receive an injection of fresh equity before the existing debt portion of the capital stack is impacted.

While some debts can be easily repaid thanks to ongoing revenue and an influx of investors, operators who don’t feel as stable may look for lifeline options, such as requesting extensions or looking into restructuring their loans.

The available alternatives will, of course, vary from borrower to borrower. However, generally speaking, lenders tend to be more willing to work within the self-storage sector. “Storage has proven to be among the most resilient of asset types, relative to other asset classes like office, hospitality, or retail, so it remains extremely attractive to both lenders and investors,” says Hill, “so unless we experience a major disruption in fundamentals, it will likely remain a beneficiary.”

Hill elaborates that it’s precisely because of these reasons that many lenders are willing to work with sponsors to extend, particularly if the sponsor has the profile and wherewithal to see a project through.

That said, Hill cautions that deals that have already been extended and continue to underperform may face more serious consequences, such as forbearance. “However, I don’t think we will see a lot of properties in foreclosure or given back to lenders precisely because storage tends to perform so well.”

When it comes to setting realistic expectations while considering refinancing options, Hill observes that it all depends on the loan’s origination date. “Loans that were made in the post GFC era may result in some sticker shock as rates jump from historical lows to more historical averages,” he says. “However, loans taken out within the last several years may experience relief. The widespread availability of ‘interest-only’ amortization has helped many borrowers offset higher coupons to help facilitate borrowing through the context of the all-in loan constant.”

Neal Gussis, executive director of capital markets at SPMI Capital, advises to act when you need to, instead of watching the news and hoping for the best. “If someone is facing an upcoming refinance, it’s best to make a move sooner rather than later. The movement in Treasuries is often tied to mortgage rates and are exposed to many market forces that are not controllable or forceable.”

Gussis adds that owners seeking a variable rate loan may have runway for more downward interest rate movement, as those mortgage rates are typically tied to indices that move in direct correlation to the Fed Target Rates, which may see further cuts in 2026.

When budgeting for upcoming debt maturities, storage operators also need to consider how other broader macroeconomic factors, such as inflation and consumer spending, will affect their bottom line.

“Expansion in the commercial sector, particularly small businesses which operate with limited office and storage space, will continue to have a positive effect on storage,” says Gussis.

Hill stresses to keep in mind that it’s all situational. “Self-storage is a submarket business, so it will depend on the supply and demand characteristics of each individual market.” He recalls how the industry at large experienced overbuilding post the COVID-19 pandemic that resulted in a supply imbalance that led to significant headwinds in rental rates in subsequent years. “As long as additional new inventory is muted, we should start to see a recovery in many markets as they find new equilibrium and pricing power returns, but that will take some time and may extend beyond 2026.”

Zeroing in on interest rates, Gussis states that lower residential mortgage rates could be a wild card. “They started in the 6.75 percent range last year and are around 6 percent now. With further reduction in residential mortgage rates, we may see a possible influx of existing home sales, which would be beneficial to the self-storage industry.”

Hill also addresses borrowing costs, pointing out that they are always top of mind and a driving factor for borrowers, yet loan applicants have started to understand that these are unlikely to return to the historically low levels following the global financial crisis. “Liquidity for self-storage borrowers remains plentiful and rates are relatively attractive historically speaking, so the window of opportunity for borrowers is wide open.”

Hill notes that more broad economic indicators, such as consumer spending, inflation, and the job market, are important components that could drive interest rates and change the tenor of the market, which is something borrowers should always be mindful of.

For his part, Gussis warns that there are eventualities that can take everyone by surprise. “There is always the black swan turn that no one can predict,” he says. “Fortunately, with all the national and international activities that have transpired in the past year, there hasn’t been any major disruptions in the capital markets.”

Gussis retains an optimistic viewpoint when addressing whether a shift in rental rates could help owners service maturing debt. “According to Yardi, more than half the major markets are now seeing year-over-year rental growth, and this is likely to continue as new supply decreases and natural absorption takes place.”

Even operators who are a bit constrained and who may be concerned about having to resort to fire sales could avoid a worst-case scenario. “I expect sales to occur due to less than projected operating results eating into investment returns, but not many at deep discounts,” says Gussis. “Particularly, many newly built facilities just need more time to lease and for rental rates to increase. Lowering financing costs for bridge products would certainly help.”

Hill agrees in part, stating that having to resort to fire sales is highly unlikely, given the historical strong performance of self-storage throughout the decades.

Capitalization rates have also remained stable despite the increase in borrowing costs over the past several years. As Hill explains, this is due to the amount of equity looking for exposure to the asset class. “Additional cap rate compression seems somewhat unlikely barring some unforeseen shift in the market,” he says.

Gussis does caution to be mindful that lenders will be able to be more selective. “I would say the capital markets landscape for this year is made up of a spectrum of capital providers, all positioned to offer debt solutions. However, the stage looks to be set for lenders to compete on lower credit risk loans and to utilize discipline and discretion and be selective, based on being presented with a larger volume of loan requests from which to choose.”