The self-storage capital markets narrative in early 2026 splits into two stories that are both true. Borrowing costs declined through 2025 as interest rates eased. Lenders want to deploy into the sector. And yet transaction volume remains below peak levels because underwriting still cannot reconcile month-to-month leases, compressed street rates, and ECRI-heavy revenue with confident debt sizing.
DXD Capital's 2025 Commercial Real Estate Lender Survey, cited in Inside Self-Storage's January 2026 investing outlook and Multi-Housing News' sector trends report, quantifies the tension. Ninety-four point one percent of surveyed lenders maintained desire to fund self-storage investments versus the prior year. Only 5.9% expressed decreased interest. The money is not the constraint. The math is.
Where Are Lenders Actually Deploying?
Acquisition financing leads self-storage lending activity, with 94.1% of surveyed lenders actively targeting acquisitions. Ground-up construction follows at 88.2%. Refinancing represents 70.6% of current lending focus. Bridge and transitional loans account for 35.3% of lender interest, gaining traction among experienced operators pursuing value-add opportunities.
Multi-Housing News reported in its 2026 outlook that Chris Bailey, managing director at DXD Capital, told the publication stabilized or light-to-medium value-add acquisitions continue to attract the most attention thanks to predictable cash flows and easier underwriting. That preference explains why single-asset trades under $10 million dominated 2025 activity while portfolio financings lagged: lenders can underwrite in-place NOI on stabilized assets. They struggle to size debt on lease-up stories in markets where concessions remain common.
The refinancing pipeline showed real momentum in Q3 2025. A Centerbridge and Merit Hill Capital joint venture obtained $425 million to refinance a 78-property portfolio encompassing 32,000 units and 4.7 million square feet across multiple states, with assets recording an 18 percent increase in net operating income since 2023. Prime Storage landed a $156 million refinancing for its NYC Prime Self Storage Portfolio, a three-property collection of more than 7,200 units across three boroughs, led by Affinius Capital with $36 million in mezzanine debt from 3650 Capital.
Those deals signal lender comfort with institutional scale when the collateral has a proven NOI track record. They do not signal openness to speculative development in oversupplied Sun Belt metros.
What Keeps Lenders Cautious?
Absorption risk during lease-up tops lender concerns at 88.2%, according to DXD's survey. Oversupply ranks second at 58.8%. Sponsor capabilities follow at 47.1%.
David Smyle, vice president at Pacific Southwest Realty Services, which provides approximately $1.5 billion in annual commercial financing, told Inside Self-Storage what used to lease up in 18 months now takes 24 to 36 months to stabilize. That timeline shift directly impacts debt service coverage on construction and bridge loans. Lenders who funded 2021 and 2022 vintage projects at aggressive lease-up assumptions are the same institutions now processing quiet key returns on assets that never hit pro forma occupancy.
Construction costs concern 41.2% of lenders in DXD's survey. Developers struggle to underwrite achievable rates because REIT pricing strategies, including dynamic rate adjustments and aggressive move-in discounting, make true market rent difficult to determine. Cory Sylvester, principal at DXD Capital, put the borrower-side problem bluntly in Inside Self-Storage's outlook: "Right now, the issue is that self-storage is very difficult to underwrite because of the nature of month-to-month rentals and rental rates don't make sense."
Loan performance data supports the sector's relative stability despite individual distressed assets. Forty-seven point one percent of surveyed lenders reported self-storage performed on par with other commercial real estate sectors. Only 23.5% noted underperformance. Seventy point eight percent have not restructured or extended self-storage loans in the past 12 months.
Is the Lending Environment Actually Improving?
Shawn Hill, principal at The BSC Group, told Inside Self-Storage that debt has gotten steadily cheaper as 2025 progressed, spurring acquisition, refinance, and construction borrowing. Borrowers sidelined for two years are finding terms more compelling.
Ian Ritchey, vice president of acquisitions at Andover Properties (Storage King USA), reported renewed demand for portfolio financing at scale in recent months, with loan requests ranging from $5 million to $200 million, likely driven by the declining rate environment. Andover Lending is seeing activity across that spectrum.
The gap is not lender appetite. It is borrower confidence in forward NOI. Green Street's Self-Storage Sector Update, cited in the same Inside Self-Storage outlook, documented asset values declining 25% from their 2022 peak. Only offices, at 38%, saw a greater decline among commercial asset classes. Rick Schontz, CEO of City Line Capital, which owns more than 320 self-storage properties in 32 states, reported a 15% year-over-year increase in one-off transactions in 2025 and a 65% increase overall after a large portfolio closing.
Financing follows deals that pencil. As bid-ask spreads narrow and spring 2026 leasing data improves, more borrowers will have the NOI story lenders need. DXD's survey suggests the capital will be there when they do.
What Does This Mean for Operators Seeking Capital?
Stabilized acquisitions remain the clearest path to lender approval. In-place NOI, documented occupancy history, and conservative growth assumptions align with the 94.1% acquisition appetite in DXD's data.
Value-add and bridge opportunities exist at 35.3% lender interest, but sponsors need credible lease-up timelines. Budget 24 to 36 months to stabilization in competitive markets, not the 18-month assumptions that dominated 2021 underwriting.
Development draws 88.2% lender interest on paper, but 41.2% cite construction cost concerns and 58.8% flag oversupply risk. Newmark's Q2 2025 market update projected completions dropping to roughly 400 facilities in 2025 before recovering toward 650 in 2026. Lenders are open to development; they are selective about which markets and sponsors qualify.
Refinancing at 70.6% lender focus is the sleeper story. Operators who locked higher-rate debt in 2023 and 2024 have a window as rates ease, provided NOI has stabilized. The Merit Hill and Prime Storage refinancings demonstrate institutional-scale appetite for quality collateral.
The Numbers Worth Writing Down
- Lenders targeting acquisitions: 94.1% (DXD 2025 CRE Lender Survey)
- Lenders open to ground-up development: 88.2%
- Lenders with decreased interest: 5.9%
- Top lender concern, absorption risk during lease-up: 88.2%
- Oversupply concern: 58.8%
- Sponsor capability concern: 47.1%
- Refinancing focus: 70.6% of lenders
- Bridge/transitional loan interest: 35.3%
- Loans restructured/extended in past 12 months: 29.2% (implying 70.8% had no restructuring)
- Green Street asset value decline from 2022 peak: 25%
- Merit Hill / Centerbridge Q3 2025 refinance: $425M, 78 properties, 18% NOI growth since 2023
Capital Without Complacency
DXD Capital's lender survey is a reminder that self-storage retains institutional favor even through a multi-year correction. Ninety-four percent lender acquisition appetite is not a distressed sector reading. It is a vote of confidence in durable demand, month-to-month cash flow, and operational recoverability.
The operators who access that capital in 2026 will not be the ones pitching 2021 rent growth curves. They will be the ones walking lenders through stabilized NOI, realistic lease-up timelines, and markets where supply is actually moderating. Lenders are ready to fund self-storage. They are not ready to fund wishful thinking.
Sources
- Self-Storage Investing Outlook 2026: Acquisitions, New Development and Lending, Inside Self-Storage
- What's Next for Self Storage in 2026, Multi-Housing News
- National Self-Storage Market Update: H1 2026 Outlook, Matthews Real Estate Investment Services
- The Gap Between What Self-Storage Sellers Want and What Buyers Will Pay, KeyCrew