Across the self-storage industry, a quiet pattern has been playing out behind the scenes. Owners of newly built or recently acquired facilities are reaching the end of their bridge loan terms, finding their properties have not hit the income projections used to secure financing, and in a growing number of cases, simply handing the asset back to the lender rather than putting more money in.
Tom de Jong, Executive Vice President at Colliers and founding principal of the De Jong Self Storage Team, has tracked this pattern closely and explains what is actually happening once a property goes back to the bank.
How These Bridge Programs Were Structured
This pattern traces back to how many of these original loans were structured in the first place. Many of these deals were funded and managed by the same real estate investment trust from the start. The REIT provided the original income projections, funded the loan through a bridge program, typically a three-year term, and financed up to 90 percent of the projected value. The property was managed by that same REIT throughout.
The problem is that a number of these properties never reached the income levels used to underwrite the original loan. When the bridge term comes due and the numbers do not match the projections, the owner faces a choice.
The Owner’s Two Options
That mismatch leaves owners with only two real paths forward. According to de Jong, the lender will either require the owner’s equity to provide a capital infusion, often enough to fund two more years of interest and operating reserves, or the owner has to hand the property back. If the ownership group is unwilling or unable to recapitalize, the keys go back to the REIT.
Because the REIT was already managing the property, the transition is largely invisible from the outside. The lender simply takes title and continues operating the asset as it had been. There is no public listing, no marketing period, and often no announcement. De Jong says this has happened in several markets recently.
Why Some REITs Are Selling Rather Than Holding
Once a REIT does take a property back, what happens next depends on whether that market fits its broader portfolio strategy. De Jong has seen REITs that take title to an asset in a market where they did not previously have direct ownership, only a management contract, decide the market is not strategic for them and sell the property rather than add it to their portfolio. In those cases, the asset that just came back from a defaulted bridge loan goes right back on the market, sometimes through relationships rather than a formal listing process.
How Ready Buyers Are Actually Sourcing These Deals
For buyers trying to get in front of these properties, the path looks different from a typical acquisition search. For a buyer who wants to move on distressed bridge loan assets, de Jong says the path runs through relationships with institutional and private equity developers, not public listings. When an institutional buyer approaches his team ready to deploy capital, his team reaches out directly to ownership groups to gauge whether the timing is right for an exit.
That process has worked in some cases and stalled in others. De Jong describes it as a tug of rope: buyers can pull, meaning they can express interest and negotiate, but they cannot push a seller into a deal before the ownership group is ready to accept the gap between what they need to exit and what the market will pay. There is still friction in matching what sellers need with what buyers are willing to offer, even as overall transaction and portfolio activity continue to pick up.
A Broader Signal In The Market
Beyond these individual bridge loan workouts, de Jong points to larger portfolio moves as evidence that the consolidation cycle is accelerating, including Public Storage’s recent acquisition of all interests in Public Storage of Canada, originally built by the Hughes family, who founded Public Storage. He expects that kind of move to bring more institutional capital and development activity into the Canadian market over time, a signal that capital is actively looking for paths into the asset class even as the bridge loan pipeline in the United States works through its own backlog.
What This Means For Buyers Watching This Pipeline
Buyers ready to act on distressed bridge loan assets should not expect to find these opportunities through conventional listings. Building relationships with brokers who have direct lines to ownership groups and lenders managing these transitions is the more reliable path to getting in front of a deal before it becomes widely known.
About Tom de Jong: Tom de Jong is Executive Vice President at Colliers and Founding Principal of the De Jong Self Storage Team. With 19 years at Colliers, a $2B+ transaction record across 32 states, and an SIOR designation, he is one of the most recognised specialists in self-storage brokerage and investment advisory in the United States.
Disclaimer: This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
