Self-storage underwriting calculator: rent roll to NOI, value, loan & IRR

What this measures

Storage underwriting starts with the rent roll. For each unit type you enter the number of units, the square feet in each, the street rent a new tenant pays today, the average rent existing tenants pay (in-place rent), and how many units are occupied. Every unit at street rent for twelve months is gross potential rent, or GPR.

Two gaps sit between GPR and the rent you actually collect. Vacancy is the empty units. Loss-to-lease is the difference between street rent and what existing tenants pay. Take both off and you get scheduled rent. Concessions and bad debt come off next, leaving net rental income. Physical occupancy counts occupied units (or square feet). Economic occupancy divides net rental income by GPR, so it shows the rent you are really collecting.

Other income comes next: the owner's net from tenant insurance or a protection plan, admin and late fees, truck rental, and retail. That gives effective gross income, or EGI. Take off property tax, insurance, payroll, utilities, repairs, marketing, software and office costs, a management fee, and a capital reserve, and the result is NOI. Value and the loan come from NOI. Year-one NOI gives the as-is value. NOI at your target occupancy, with every tenant at street rent, gives the stabilized value.

Formula

GPR = Σ units × street rent × 12. Vacancy = Σ empty units × street rent × 12. Loss-to-lease = Σ occupied units × (street − in-place) × 12. Scheduled rent = GPR − vacancy − loss-to-lease. Net rental income = scheduled rent − concessions − bad debt. Economic occupancy = net rental income ÷ GPR.

EGI = net rental income + tenant protection + fees + truck rental + retail. NOI = EGI − operating expenses − management fee − capital reserve. As-is value = year-one NOI ÷ cap rate. Stabilized value = stabilized NOI ÷ stabilized cap rate. Debt yield = NOI ÷ loan. DSCR = NOI ÷ annual debt service.

LTV loan = max LTV × the lower of price and as-is value. DSCR loan = the amount whose payment equals NOI ÷ minimum DSCR. Debt-yield loan = NOI ÷ minimum debt yield. Loan = the least of the three. Exit value = the NOI of the year after the sale ÷ exit cap rate. Levered IRR uses equity in, yearly cash flow after debt service, and the net sale proceeds.

Example

Example

The sample facility: 480 units and 51,500 rentable square feet across six unit types, with 397 units occupied, so physical occupancy is 82.7% by units and 79.8% by square feet. GPR at street rent is $874,800. Vacancy takes $168,480 and loss-to-lease takes $76,716, leaving $629,604 of scheduled rent. Concessions at 2% and bad debt at 1.5% leave net rental income of $607,567.86, so economic occupancy is only 69.5%. Tenant protection, fees, truck rental, and retail add $57,472.12, for EGI of $665,039.98. Expenses of $222,000, a 6% management fee, and a $0.15 per square foot reserve leave NOI of $395,412.58. At a 7% cap rate that is an as-is value of about $5.65 million against a $5,600,000 price. At 90% occupancy with every tenant at street rent, stabilized NOI is $545,293.16, worth about $7.79 million at the same cap rate. A 65% LTV caps the loan at $3,640,000, below the DSCR and debt-yield limits, so LTV sets the loan. Debt service is $301,790.15 a year, the DSCR is 1.31, and the debt yield is 10.9%. Year-one NOI is $395,413. As-is value is $5,648,751. Max loan is $3,640,000.

Illustrative example. Every input is a sample so the math is visible, not a real facility, a market average, or a deal RE Underwrite Lab did. With lease-up to 90% over two years, existing tenants moved to street rent over three years, 3% rent and expense growth, a 5-year hold, and a 7.5% exit cap, the example shows a 25.5% levered IRR, a 15.2% unlevered IRR, and a 2.86x equity multiple. Most of that return comes from lease-up and mark-to-market you would still have to achieve. The guide to underwriting self-storage walks the same numbers line by line.

Example

Second example

Illustrative example. A 300-unit facility has an average street rent of $120 a month, so GPR is $432,000. At 85% physical occupancy, vacancy is $64,800. Existing tenants pay 8% below street, a loss-to-lease of $29,376, which leaves scheduled rent of $337,824. Concessions and bad debt of 3% leave net rental income of $327,689.28, an economic occupancy of 75.9%. Add $25,000 of other income for EGI of $352,689.28. With $140,000 of expenses and a 6% management fee ($21,161.36), NOI is $191,527.92, about $2.55 million of value at a 7.5% cap. These figures are made up and are not the sample in the form above.

When this ratio misleads

Stabilized value can make almost any storage deal look good. The gap between as-is and stabilized value is work you have not done yet: filling units against nearby competitors, raising existing tenants to street rent without losing them, and holding street rents while you do it. If the price is closer to stabilized value than as-is value, you are paying the seller for that work. Treat the IRR as a sensitivity test. Stretch lease-up by a year, set mark-to-market to 0, and move the exit cap up half a point, then see what is left.

Common pitfalls

Underwriting physical occupancy as if it were rent. A facility can be 90% full and still collect far less than GPR once loss-to-lease, concessions, and bad debt come off. Look at economic occupancy.

Assuming every existing tenant moves to street rent. Large rent increases can push long-time tenants out, which adds vacancy and move-in specials. Test a longer mark-to-market period or 0.

Keeping the seller's property tax. Many counties reassess on a sale, so the tax line can jump after closing. Enter what you expect to pay.

Counting tenant insurance at the price the tenant pays. Enter only the owner's net after the insurer or plan administrator takes its share, and check the state's rules.

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