# Case: Self-storage refinance after promotions mask collected rent

Canonical: https://commercialdebtadvisory.com/cases/self-storage-refinance-after-promotions-mask-collected-rent/
Status: Published
Publisher: Jaken Finance Group

**Hypothetical storage maturity case.** A 500-unit facility has 450 occupied equal-size units, each with $120 of monthly face rent. The existing loan has a $3.1 million principal payoff. The owner expects to refinance after a promotional campaign ends and points to 90% physical occupancy as evidence that the property has stabilized.

The important question is when the improved rent becomes accepted cash flow for the refinance. Ending a promotion changes future collections; it does not rewrite the weaker months already included in a trailing operating statement. All facility assumptions and financing conditions here are invented.

## Rebuild the promotional cohort

At the beginning of the observation year, 100 of the 450 occupied units receive a 50% discount for three full months. They remain occupied afterward at the same face rent. There is no assumed move-out, replacement promotion or rent increase during the twelve-month base case. Collection loss is $2,000 monthly throughout; it excludes the promotional credit.

The facility has $4,000 of recurring ancillary contribution monthly, already net of its direct costs, and $25,000 of other operating expenses. For sizing, assume the lender accepts this defined cash flow without another reserve adjustment.

| Monthly measure | Months 1–3 | Months 4–12 |
|---|---:|---:|
| Gross potential rent, all 500 units | $60,000 | $60,000 |
| Face rent on 450 occupied units | $54,000 | $54,000 |
| Promotion, 100 × $120 × 50% | ($6,000) | $0 |
| Separate collection loss | ($2,000) | ($2,000) |
| Collected base rent | $46,000 | $52,000 |
| Ancillary net contribution | $4,000 | $4,000 |
| Other operating expenses | ($25,000) | ($25,000) |
| Defined monthly sizing cash flow | **$25,000** | **$31,000** |

[Public Storage's issuer reporting definitions](https://www.sec.gov/Archives/edgar/data/1393311/000162828026007696/psa-20251231.htm) distinguish contract rent from a realized measure reflecting promotions. Its definitions are context for transparent measurement, not a rule requiring a private lender to use this case's cash-flow convention.

The owner's face-rent shortcut would show $33,000 monthly cash flow: $54,000 plus $4,000 less $25,000. It omits both the promotion and collection loss. The resulting $396,000 annual projection is not supported by this ledger, even after the promotion ends, because the recurring $2,000 monthly loss remains.

## Put each income number on its proper period

During the promotional period, annualizing one month's cash flow produces $300,000. Afterward, annualizing $31,000 produces $372,000. The actual twelve-month total is three months at $25,000 plus nine at $31,000, or **$354,000**.

These are three different measurements of the same stated operating path. The current annualization can be informative, but it should not be labeled trailing NOI. The trailing total can be accurate while understating the latest run rate. The lender must identify which evidence and adjustments it accepts.

Assume the loan matures after month twelve and the proposed refinance uses the documented trailing twelve months. There is no automatic right to substitute the $372,000 annualization. The [OCC refinance-risk guidance](https://www.occ.treas.gov/news-issuances/bulletins/2024/bulletin-2024-29.html) supplies the broader context for testing repayment at maturity; the chosen measurement rule is fictional.

## Convert the period difference to a payoff contribution

Assume a 1.25× DSCR requirement, a 9% annual debt-service constant and a separate $3.6 million collateral ceiling. The constant includes principal and interest, not simply a note rate. All four illustrated DSCR capacities fall below that collateral ceiling. Refinancing costs equal 2% of new principal; no other payoff costs or new reserves are included.

| Income basis | Annual accepted cash flow | Gross capacity | Net after 2% costs and $3.1m payoff |
|---|---:|---:|---:|
| Unsupported face-rent shortcut | $396,000 | $3,520,000 | $349,600 surplus |
| Current promotion-period annualization | $300,000 | $2,666,667 | $486,667 shortfall |
| Actual observation-year total | $354,000 | $3,146,667 | **$16,267 shortfall** |
| Post-promotion annualization, if accepted | $372,000 | $3,306,667 | $140,533 surplus |

The actual trailing case nearly repays the debt, but “nearly” still requires cash. It also has no allowance for accrued payoff interest, prepayment charges or additional reserves. Those uses should remain visible instead of rounding the $16,267 deficit to zero.

## Test whether more time actually changes the result

To repay $3.1 million after 2% costs, accepted annual cash flow must be at least **$355,867** at the selected DSCR and constant. The actual $354,000 record misses that threshold by approximately $1,867.

If month thirteen produces another $31,000 and replaces the first $25,000 promotional month, trailing cash flow rises to $360,000. That clears the narrowly defined threshold. But the debt already matures after month twelve. Waiting requires an actual extension or another funded repayment arrangement, including its cost and conditions. The maturity date does not move because the rolling average is about to improve.

More critically, suppose the operator must continually offer new promotions to replace move-outs. If another cohort creates the same $6,000 discount each month, the improvement never arrives under otherwise unchanged assumptions. A forecast based only on the first cohort's expiration would then confuse an individual promotion with the property's recurring acquisition cost for tenants.

## The evidence that changes the decision

Prepare a cohort register linking move-in date, contractual rent, promotional period, actual collection, move-out and replacement. Reconcile it to the management system and bank receipts. Track whether the first cohort stays at full rent and whether new concessions offset the gain.

The decision is to fund the month-twelve gap and excluded uses, obtain a documented lender treatment accepting another supported income basis, or secure a viable timing change before maturity. A 90% occupancy headline resolves none of those conditions. The useful result is a dated bridge from promotional collections to accepted repayment capacity.


## Source references
- [Public Storage — 2025 Form 10-K](https://www.sec.gov/Archives/edgar/data/1393311/000162828026007696/psa-20251231.htm) — Item 7, Same Store Facilities footnotes (c) and (d), printed p.32 · Checked 2026-10-21 · Issuer-specific definitions for the year ended December 31, 2025, not lender income-recognition rules.
- [OCC Bulletin 2024-29 — Refinance Risk](https://www.occ.treas.gov/news-issuances/bulletins/2024/bulletin-2024-29.html) — Transaction-Level Risk Management and Risk-Rating Considerations · Checked 2026-10-21 · October 3, 2024 publication; OCC-supervised bank context. No fictional underwriting threshold is prescribed by the bulletin.