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Boat and RV Financing Options in Today’s Market

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The pandemic has fueled people’s desire to seek activities in which they can safely social distance, which has supported growth in boat1 and RV sales2. Despite this ongoing trend, there is a shortage of boat and RV storage. The lack of storage hasn’t slowed the growth in sales as many people often purchase boats and RVs and don’t think about the storage options until after the fact. With the increase in sales and homeowners’ associations with restrictive covenants on boat and RV storage, the need for storage solutions continues to grow, creating opportunities for those who are paying attention.

Boat and RV Storage vs. Self-storage

Just like the self-storage industry, the world of boat and RV storage, also known as toy storage, has continued to boom. While a needed service, boat and RV storage is often passed over in favor of self-storage because the returns don’t appear to be quite as good as self-storage. But with the right location and storage options, opportunity abounds in order to meet the boat and RV storage demand.

Boat and RV storage requires more land for fewer units, which is why the cost per square foot is not as attractive. Using high-priced property in areas that are more convenient, such as being in town, for boat and RV storage wouldn’t make financial sense; that property is better suited for self-storage. Therefore, it’s best to look for land for toy storage outside of town, near the city limits, or out in the country, where larger parcels of land are available, and land is less expensive. These types of storage facilities require wider driveways. For example, a facility that’s 40-feet wide requires a driveway that is 125 percent of that, so it needs to be 50 feet wide. With a self-storage facility, you typically only need a 30-foot driveway at the most. The space required for the driveway is wasted space that cannot be rented. Comparing total facility size, seven to ten acres of land may be required to construct 100,000 square feet of boat and RV storage, whereas a self-storage facility of 120,000 square feet can be built on about two to three acres.

Despite the differences in the types of facilities, construction costs are similar for self-storage and boat and RV storage. It’s not necessarily less expensive to build toy storage, but the cost of land is where you can potentially see savings. In markets saturated with self-storage facilities, finding the right piece of property in the right location, which is sometimes outside of town, to build boat and RV storage facilities can be lucrative if there is a demand. Many people are often willing to drive several miles to park their boat or RV—especially their RVs. In fact, in markets with a severe shortage of storage, owners can increase rents to make the venture more profitable. Also, if you are close to a lake, people who use that lake for their boating may live quite a way from the lake and would rather use your facility than transport their boat back and forth.

Another option is augmenting a regular self-storage facility with some boat and RV storage to increase revenue. Perhaps there is additional land that you plan to use later for self-storage for additional phasing but could be used for parking until you are ready to add that next phase.

Despite this demand, it is still a segment that many are hesitant to enter. Some are concerned that if the economy goes south or if there is a recession, people will start turning in their boats and RVs. At Live Oak, we did some homework in January of 20173, interviewing folks in the industry that had boat and RV storage during the Great Recession. We asked how their toy storage business faired and what they saw overall in that segment. Surprisingly, some said that they had to expand. Most said that they had no issues with that part of their business. Many times, the people who can afford those toys don’t get hit as hard as others and they aren’t going to let “their baby go” either back to the bank or to a sale. One facility owner pointed out a logical fact, stating, “Think about it, even if someone was to turn in their keys to their boat or RV, the bank isn’t going to come and get it and put it in their parking lot. They still need somewhere to store it while they go through the process of repossession and disposition.”

Types of Facilities

A variety of facilities exist for boat and RV storage. The most common style is simply a field where they can be parked outside. The next step up is a canopy structure, followed by a three-sided structure, and then a fully enclosed structure. A canopy, which is essentially just a roof, protects RVs and boats from weather exposure from above. A three-sided structure is basically just a canopy with walls on three sides and no door. This style offers more protection from the elements. However, it’s important to study the location before constructing this style because if there are high winds, it can create a wind trap that could pull the roof off and possibly blow off the walls. A fully enclosed structure, with roll-up doors, is obviously the most expensive choice to construct, but these structures offer the best security and protection from the weather. Those with higher-end toys usually don’t mind spending the money to protect their investment in this type of facility.

One unique style recently seen in the marketplace is a three-sided structure with a canopy that uses a chain link fence for doors. The facility uses two gates that come together in the middle like a French door. This offers security without having a fully enclosed unit. The chain-link gate is a lot less expensive than large roll-up doors, which require a motor, an opener, and a personnel door. For the markets that want a fully enclosed facility, this offers a sort of compromise, providing more security without the extra expense.

As far as costs are concerned a canopy is not going to be a whole lot less than a climate-controlled self-storage building. The fully enclosed option is more expensive due to the heavy structure to support the roof with wide-open spaces below and the larger commercial-type doors that are needed. The wider driveway space must be taken into consideration. One benefit to constructing the canopy style is that it can be built so that the vehicles can be pulled in at a 60-degree angle which allows you to decrease driveway space.

There are plenty of other amenities that can also be added to a boat and RV facility. For example, some facilities offer dump stations, which are convenient for the renters. Some also provide electricity, offering renters the convenience of plugging in their trickle chargers, for example, to ensure that their RV batteries stay charged. Some will require that you get your own meter so that the expense of the electricity is paid by the renter.

One other consideration, depending on your location, could be to install solar panel systems on the roof of these structures. These can help offset your operating expenses by selling power back to the local power grid. Sometimes this can open more financing options as well.

Financing Similarities

When it comes to financing, there are no major differences between regular self-storage and boat and RV storage. The lending process is similar at Live Oak Bank, a major lender of self-storage loans as well as boat/RV storage loans. The bank still wants to have a feasibility study done, which determines if there’s a market at the location, what size is needed for the facility, how many spaces are needed, how much rent will be collected, etc. Feasibility studies for boat and RV facilities are done differently than self-storage studies, so be sure that you work with someone who has a lot of experience in doing these types of studies.

Some lenders will consider boat and RV storage and assume that a downturn in the economy will cause customers to sell boats and campers. As mentioned earlier, Live Oak found that during the last recession, boat and RV storage grew in some markets, which led us to look at toy storage similarly to self-storage. They found that even during the recession, many people still held onto their boats and RVs because they are such big investments and are so enjoyable. Even if people do sell their boats and RVs or banks had to repossess them, storage is still needed. Banks can’t take the boats and RVs to the bank parking lot.

Lending Boom

A decade ago, finding funding for self-storage ventures was a challenge. Banks were hesitant to dole out funds during the recession. It was very difficult for people who wanted to build and expand their businesses because they couldn’t get the money. Even people with great credit and lots of personal financial wealth could not obtain loans. Things are different today. Since 2014 when financing started to open again, it seems that there are lenders that have appeared everywhere, looking for opportunities in the storage industry.

One important change occurred in late 2010 when the Small Business Administration (SBA) made self-storage eligible for SBA loans. Previously, storage was primarily financed through conventional lending and private equity. This loan program alone has helped an untold number of people successfully enter the industry.

Today, there’s more money available in the industry from:

  • Conventional loans
  • Private equity
  • SBA – 7(a)
  • SBA – 504
  • Commercial mortgage-backed securities (CMBS)
  • Life insurance
  • Joint ventures

Conventional loans. These loans usually have good rates but require more equity, typically between 25 and 35 percent. There is no set limit to these loans, and they have up to 25-year terms. Each conventional loan is different according to the bank you choose what their equity requirements are, what kind of financial covenants they include in the loan, and how long the term is. This is the most used loan for storage facilities, but typically requires the most equity and has the most strings attached.

Private equity. There are two types of private equity—institutional and friends and family. Depending on which type of private equity it is, the terms, conditions and rates vary. Private equity is very flexible and fluid, but the lenders usually have set terms on recouping their money within a certain number of years, so they can use the profits to make additional investments. There is probably more private equity in the industry now than ever before.

SBA 7(a). SBA loans are a viable option for storage facilities when the owner/developer doesn’t have a lot of money to put down. The SBA 7(a) loan is for deals up to $5 million. It requires as little as ten percent equity, a 3-year prepayment penalty, no financial covenants or balloons, and offers a 25-year fully amortizing term. You can also get the lease-up working capital that you would need to cover the bills while you reach stabilization. Depending on the bank that you use, it is possible that you could get a conventional pari-passu loan to get above the $5 million mark if needed, while still getting the benefits of the 7(a) loan.

SBA 504. This program can get you larger amounts than the 7(a) and part of the loan is fixed at a low rate for 25 years, typically requires 15% minimum equity, and doesn’t allow for working capital to be included. The prepayment penalty is 10 years for the SBA portion of the loan. If you have used up your allotted SBA loan amount ($5 million per guarantor), you may be able to use the SBA “green” program, which will allow you to get more SBA program dollars, but the project must contain certain aspects of renewable energy.

CMBS. These are quite often interest-only loans that typically require equity but offer low rates and terms of five to ten years. These are normally non-recourse. Usually, a CMBS loan is going to be used for a stabilized facility with a good track record.

Life Insurance. Also requiring a lot of equity, these loans typically offer low-interest rates with five to ten-year fixed-rate terms and are possibly fully amortizing up to 20 years. These are also going to typically be used with stabilized facilities with a good track record.

Joint Venture. Another available option is joint ventures. These are opportunities with certain companies that will provide equity and help finance your construction. These offer good sources for equity, but you need to be careful in defining the terms such as control, decision-making, and fees. These loans usually have a minimum amount that they will take on.

Lender Experience

For small business owners in the storage market, working with a lender who has experience in the industry is very important. Live Oak Bank primarily funds self-storage and boat and RV storage through SBA loans and is the largest SBA lender by dollar volume in the country.4 

Across the country, SBA loans have become a clear option for folks who don’t have the equity needed for conventional lending or other sources. It allows the small business owner the ability to get into the business without the larger amounts of equity that are required for other lending sources.

The key to Live Oak’s success is experience. The bank has a unique model of focusing only on specific industries and hiring lenders who have vast experience in those industries. These experienced lenders bring a lot to the table for their customers, offering credibility right out of the gate.

The Live Oak lending team conducts a site visit on almost every deal that it finances—whether it’s an existing facility, a building for conversion, or just dirt. The site visit not only allows the lenders to inspect the property but also gives them the chance to offer the customer advice on any potential problems or issues that might even save the customer money on the purchase – allowing our customers to benefit from our many years of self-storage experience.

The Road Ahead

It appears that the demand for boat and RV storage affords opportunity in many areas. Lenders are widely available for those who are ready to start. Before you commit to a lender, it is wise to do your homework on your market and on your lender. Look for value and performance, not just the lowest rate. The same goes for the building supplier if you are going to build. Look for quality. Don’t just look for the lowest price. Whether it is your General Contractor, your building supplier or your lender, you usually get what you pay for.

You have already seen references to feasibility studies. Be sure to invest your money in a good study. You want that experienced third party to give you the info that you need. Lenders who care about your success will require one. The bottom line is that if you are planning to invest in boat and RV storage, conduct ample research and explore all your options. Visit liveoakbank.com/self-storage to learn more about storage financing or to contact a member of Live Oak Bank’s storage lending team.

References

1 Boating Industry. (2021, April 27). New boat sales still strong in 2021. https://boatingindustry.com/news/2021/04/27/new-boat-sales-still-strong-in-2021/.

2 Hanrahan, K. (2021, May 28). RV sales continue to climb as more first-time campers head out. WRAL. https://www.wral.com/rv-sales-continue-to-climb-as-more-first-time-campers-head-out/19697168/.

3 In January of 2017, Live Oak Bank’s self-storage team conducted an informal, word of mouth survey with our contacts in the storage industry to learn how the recession was affecting boat and RV storage and found that it was largely unaffected. This information is anecdotal and has been used to guide our lending practices internally. It is not however, a professional sample size study.

4 The data supplied by the SBA reflects 7(a) highest dollar volume during FY 2020.

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