00;00;00;05 - 00;00;25;16
AJ
How to be successful in storage. We're talking about find opportunities, operate that facility to actually create wealth and be successful. Now we're going to hit on three main things in this video right. We're going to hit on the market technology and structure. Now we're also going to go over and structure things like debt. In fact we'll cover my debt and how much debt I have north of 100 million.
00;00;25;18 - 00;00;52;10
AJ
I know we'll cover it. Now storage industry has gotten slammed over the last three four years, with rates falling more than they did in the great financial crisis. We're going to discuss what that means today. What you have to look out for to find opportunity but also avoid risk. I've been doing this for over 20 years and on storage through the great financial crisis.
00;00;52;17 - 00;01;14;02
AJ
During that time, we've never lost a deal. We've never had problems like that. So we're going to talk about how you can find opportunity, but more importantly, survive because you don't control those things. And that's what you need to look out for.
00;01;14;04 - 00;01;40;25
AJ
So let's dive in. First thing is the market. Now the market is both broad and individual. We're going straight down to your three mile radius right. The three mile radius or five mile radius as we call it. You need to look at a very simple metric. We're talking about supply now supply and demand. This will dictate everything. And this has changed wildly in the last four years.
00;01;40;28 - 00;02;13;03
AJ
You see as homes froze, meaning the home market and transactions froze because high interest rates went up. Yes, but in reality, we're talking about roughly 80 plus percent of all homes being in a 30 year mortgage at four 3% interest. That just froze the housing market. It's unaffordable to buy. And the people that own homes aren't releasing them because the cost to sell a home that you have a 3% interest rate to move into a 7% interest rate.
00;02;13;06 - 00;02;34;21
AJ
That makes no sense at all. You can't make that work. That causes the problem to be even worse. The housing market is a story of supply. Why does that affect storage so much? Because 45% of our tenants come from moving. So demand slowed down with the housing market on the back of a boom due to low interest rates.
00;02;34;24 - 00;03;05;04
AJ
This changed the supply and demand metrics across the United States. This caused occupancies to drop and rents to plummet. I have deals that in markets we saw a 60% drop in rates. Now that's catastrophic. Now over this time, it is similar to a lot of things we saw in 2008, but for totally different reasons. The back side of this is that creates a lot of opportunity.
00;03;05;07 - 00;03;38;00
AJ
It also creates future excess demand. Why? Because those high interest rates did something else to that supply side. It killed new supply. New supply has been cratering ever since then. And that is a long tail structural part of demand. Meaning that demand from customers that comes and goes, it even comes and goes. And seasonal aspects. Winter being low.
00;03;38;02 - 00;04;06;29
AJ
Summer being high. Supply is structural. And when markets as they come back like we saw self-storage stabilized in 25. And we actually saw increases in occupancy and rents into 26 for the first time in four years. Supply is still going down. You can't build building cost are still high while rents and occupancy is down. In order for that to turn around.
00;04;07;02 - 00;04;34;25
AJ
It's not just that you need occupancy and rents to just keep going up and performance to get good, but you also need the ability to finance. And it takes time, meaning that by the time that rents, occupancies are growing and growing fast and development looks really good, it takes years for that supply to come online that exaggerates that up cycle massively.
00;04;34;26 - 00;05;00;21
AJ
That is a real estate cycle. That's what we're seeing in storage. It's what we saw after 2008. That five mile radius that you're looking at. That's what's impactful. Meaning that when you're looking at a market new supply that is coming onto that market will dramatically change. So if you do have a market that you want to buy or you're operating in, you need to know if someone is building or started building and it's come out.
00;05;00;23 - 00;05;30;04
AJ
That is going to change that market a lot because demand is lower, that new supply needs to fill up in order to fill it up. They have to be very competitive. And so what do they do? They drop rents and that hurts the whole market. So the number one thing that you need to do is make sure that that market has no new supply coming, or if it does, it's very little in relationship to the total supply and people in it.
00;05;30;06 - 00;05;55;28
AJ
That is the most important thing. Now how do we understand demand occupancy and rents occupancy rising and rents rising with it. That shows excess demand. Occupancy is high, rents are moving up and occupancy doesn't drop down. That means that they have more customers that are willing to pay higher price or replace the ones at a higher price than the market allows for.
00;05;56;00 - 00;06;22;19
AJ
You're literally kicking people out, giving rent raises, and you're still filling up. That's good. Remember this the market determines everything. You can't control it no matter how good you are. When occupancy and rents are dropping, you're hit by it. And no matter how bad you are, when occupancy and rents are rising, you get the benefit of it. That's why this is the most important thing.
00;06;22;21 - 00;06;48;06
AJ
It is how you succeed. Bottom line that's why it is a go or no go. Especially today. That is very important today. And you've got to be careful with that. And it will determine your success out of your control. First thing now we move on to number two technology. We have technology that has changed the landscape of storage.
00;06;48;06 - 00;07;18;07
AJ
This started back obviously in 2008 where changed health facilities operate. We talked a lot about how storage is more like a business, right, than a real estate asset. That's because we do so much dynamic pricing, revenue management, marketing, and we can use technology to completely change the customer's experience. We now have keyless technology that's on the hardware, that's on the facility, then software that attaches to that, and you can automate the whole entire customer experience.
00;07;18;09 - 00;07;46;27
AJ
You can lease up at night. You can lease up when nobody's there. You don't need someone to process payments. You don't need someone to lock a tenant out. Shut the gate. Do auctions online. That lowers your overall operating cost while increasing your operational abilities. This is big, and the people that have this and are good with it, they are outperforming in a pretty big way right now.
00;07;46;29 - 00;08;10;19
AJ
Why 85% of all our customers that we receive come to us? How? Online? So if you're not doing it and you don't have the tech and you don't have the operations to facilitate it, you are missing out on a huge portion of that demand. Now, AI has changed the game a lot in storage, but most people don't know it.
00;08;10;26 - 00;08;35;07
AJ
They're not seeing it. We have yet to see a lot of the effects, but how it's really changed is behind all that software, behind all that data. We are layering in AI. So I spent three years building a proprietary system that takes in huge amounts of data, and that helps us set rates, do occupancy levels, dynamic pricing, revenue management.
00;08;35;08 - 00;09;02;01
AJ
This helps us improve our overall rent per square foot. But remember, if the market's going down, that stuff really doesn't help a whole lot. All of a sudden you're still getting lower rents on move ends than you had existing. And occupancy is lowering. Where that helps us and stabilize markets where there is demand. That's why today we are seeing the effect in a way that we didn't before.
00;09;02;03 - 00;09;27;19
AJ
Before that had a really big help with lowering your expense ratio. So the amount of expenses it takes to own and operate. The other thing that technology does is allows us to see what I mean by see is actually see, we get all the data and we can see using things like track IQ that allows us to see the market, the competitors, occupancy rates, everything else so we can make great decisions.
00;09;27;21 - 00;10;04;13
AJ
We can see what's actually happening and make data driven decisions. Now things like accuse technology from know key and tracked IQ and your property management system like hummingbird. All of these things are available to everyone. We can all use it and we can all use it on our facility. So this isn't something that you're barred out from. In fact, these advances, when we talk about these things like AI and other tech stacks that we have that's available to everyone, has dropped down that opportunity to everyday investors.
00;10;04;15 - 00;10;30;17
AJ
What used to be reserved for the biggest and the best is now not just the rates anymore. It's for the person that owns 70 units on a facility that's only worth 100,000. They get that same benefit. That is a wild, wild change and it helps out small newbies, mom and pops, independent operators disproportionately than it does to others.
00;10;30;19 - 00;10;51;13
AJ
This is amazing, but you do need to adopt it and you do need to understand it. All right, since I know my listeners are self-storage nerds just like me, I want to share with you ways that I've seen other people get started in self storage. So you may not know, but I wrote a book that's hard to even call this a book.
00;10;51;13 - 00;11;20;23
AJ
I mean, this is a manual. We're talking a hundred plus pages, which include all sorts of information about how we have been in the self-storage industry. That's everything from how we got our first deals to scaling to buying deals in today's market. What's changed and what remains the same? This is an up to date book that shows you how the market has changed and how you can win today.
00;11;20;24 - 00;11;46;22
AJ
This isn't simple. This is how you buy a deal. No, this goes into everything, including how you scale and create a self storage business. You can get a physical copy, an e-book or the audio book, plus free access to bonus content at the end of each chapter. You can get it today. It's available on Amazon and other platforms in which you can follow the link.
00;11;46;24 - 00;12;09;20
AJ
All right. Now number three how to succeed in self-storage, especially today. We already talked about the market. We talked about technology, its effect lowering expense, raising rates, lowering risk, understanding the market, measuring the last one is the structure of the structure that you set. That is a big deal. Managing debt is really really important because you can't control the markets.
00;12;09;22 - 00;12;36;28
AJ
Once again this is how we survived 2008. This is how we survived high interest rate environments. We do not over leverage. In fact, as of right now our portfolio sits at 56% LTV. And that is not including when we look at like valuations, for example. That is including what we bought at it, what we put down. We're not including things like improvements.
00;12;36;28 - 00;13;05;22
AJ
So we built a facility for 27 million okay. That $27 million facility, we put 19 million into it. That was with zero tenants. That facility is now almost 80% full. But we're not taking that into account. We're just using those bare base numbers. So in reality, our actual LTV is lower than that. That gives you flexibility in uncertain times.
00;13;05;23 - 00;13;30;17
AJ
That is how we went through different cycles and managed it. Now when we're looking at it, the truth of the matter is that is basically mandated banks today and used to they require you to put more down. Banks will not allow you to over leverage. When we're buying facilities we're putting we're talking 40% or more down. Sometimes that is a requirement.
00;13;30;19 - 00;13;53;04
AJ
Even if I wanted to leverage more. Nobody's going to let you. Banks won't allow you to do that. So while although it's kind of a given because it is a structural thing, meaning in the industry, in the banking, it's one that you do have to watch out for in terms of terms, actual terms, meaning floating interest rates. When do you refinance?
00;13;53;06 - 00;14;20;02
AJ
How does that work? Is your rate set in? For how long are you about? Two year. Note do you have a ten years amortized? You know by 2023 years? Or is at 15 years. All of those things come into play when you're talking about the structure that you overlay on that investment. Another thing that you need to do when you're structurally putting together a deal, a lot of people don't just use their own money like us.
00;14;20;05 - 00;14;42;23
AJ
We have our own money and we use it. In fact, we make up the vast majority of all investment in our deals. Our latest deals were 60% of all the money in our assets. We also are the only ones that guarantee the debt. In fact, our structure is unique considering the fact that we have never given a capital call.
00;14;42;25 - 00;15;09;19
AJ
Not only that, I've only ever made money off the return of my capital. So we've never even made money off of fees or investors ever. It's only been the return from the capital. Return of my personal investment. This is a way that you can structure it very differently and we see lots of people do it differently. You have to be careful with how you set it up, because once things change, you can't change it.
00;15;09;21 - 00;15;31;29
AJ
This also comes into alignment. The banks are going to want to look at this. It's well on his investors. Now this is a big deal. Right now we're buying lots of assets. I just recently purchased around 50 million and we are looking at multiple hundreds of millions today, including under contract with 60 million. So a lot of time and attention goes into not just the underwriting.
00;15;32;00 - 00;15;55;17
AJ
Now those are big numbers, but it's all the same, meaning that you're $1 million investment versus a 10 million versus a 20 million. It's still the same. These important factors that go into how you structure a deal. The other thing that's important is how you structure the acquisition. What is the price that you're paying when you structure that acquisition?
00;15;55;17 - 00;16;18;05
AJ
What are the terms? What's your due diligence time? What do you get? How does that start? A helpful tip that I like to talk about and use is that our due diligence period starts once I receive all the information. Meaning let's say that you under contract to buy a facility. Okay. You have two months. Your money goes hard after month one.
00;16;18;06 - 00;16;45;17
AJ
That's a short time frame. Okay. Try to get it, like 3 or 4 months. But for this example, our average time right now is probably 4 or 5 months that we close. But your due diligence starts and then your money goes hard when due diligence is over. Meaning you don't get that back. But if it takes two weeks for the owner to get you all of that information that just eight, two weeks of your time for due diligence.
00;16;45;19 - 00;17;12;27
AJ
So little structural things when you're setting up the deal with your PSR, when you're buying an asset, what you're paying, how the debt is structured will absolutely play into your success. This has to do with can you survive? During downturns, up cycles and everything in between. It's important to do this and have a plan. Meaning that as markets change, rents go down.
00;17;12;29 - 00;17;34;26
AJ
What is your plan? Do you have reserves? Do you have it on hand? We keep a lot of cash reserves. This is why when we structured our deals and even with investors, we've never done, capital call. In fact, when we had sites that performed poorly, I personally covered it for investors so they wouldn't have do take that loss.
00;17;34;28 - 00;17;56;05
AJ
Now, that may not be something that I continue, but it is something that I have done as a personal choice. But your contracts will actually determine how that works. I chose to just because I wanted to, and I felt that it was right. Now all deals that you have go through cycles. Some deals do really good one year, really bad the other year.
00;17;56;05 - 00;18;22;01
AJ
That's going to be dependent on the market and what's happening really important when you're talking about that supply, a new deal pops up in year two and you're trying to raise rents. Well, that may push rents down. Well, did you plan on rents getting to a certain point? Do you have enough capital to fill up the facility and do capital improvements, or is it so tight that any change at all you no longer have money?
00;18;22;04 - 00;18;44;21
AJ
I have a lot of deals and have had a lot of deals across a lot of states, and we continue to buy. Every one is different. What I mean by different is we structure it based upon the asset and what the asset needs. The asset always comes first in order to survive. Up cycles, down cycles, everything else. You need to make sure you have room.
00;18;44;23 - 00;19;12;28
AJ
You also need to have room when you're dealing with capital expenses. These are little things, but they make a big, big difference when the market changes. And the reality is, is that even though markets go down, they also go back up. Our deals that we may have bought in 2009 may have performed low in 2010 and 11. But then, amazingly, in 2012, 13, 14, 15.
00;19;13;01 - 00;19;36;11
AJ
You cannot control those markets. You don't want to be in a position when you have to sell. When the market is down, and you can't take advantage of it when it's up. Structurally, you need flexibility. So when we look at our debt, our terms, when we look at our cash reserves, how we're handling things, what we're doing, it's all about flexibility.
00;19;36;14 - 00;20;01;15
AJ
Some assets may be struggling, may perform better later on. You want to work through that and you want to be able to build it out. So then you can make the operational improvements to improve that asset. When changes happen that you have no control over, you can't do anything about it. You don't get to control interest rates. You also don't care to control what a competitor does, but you do get to control how it is set up.
00;20;01;17 - 00;20;29;23
AJ
That's the most important thing. So when we look at it, we're talking about first and foremost things. You can't control the market. Second, we're talking about technology and operations to give you a competitive advantage so you can outperform the market. And third we're talking about the structure that you overlay on top of that asset, that structure that allows you to go through good markets.
00;20;29;23 - 00;20;58;05
AJ
Bad markets have flexibility and to know what will happen. All of these things coming together allows you to be successful. You don't want to turn a good deal into a bad deal because of something you've done. You want to be able to optimize all that opportunity and hedge against that risk. That's what it's all about. There is no perfect investment and there's no perfect market.
00;20;58;07 - 00;21;24;16
AJ
So when you're getting started, of course you plan for the best, but you prepare for the worst. It's the flexibility that matters, and then you can optimize it. Take advantage when interest rates go down to refinance, pull equity out, or when buyers want to come in and pay you a lot of money. Sell or hold on. The markets aren't doing good and you have competitors or rates go down and wait and take advantage as those things change and go back up.
00;21;24;19 - 00;21;56;27
AJ
Remember, self storage is a business. It's not a real estate asset. This isn't some speculative thing. This isn't a guaranteed right. It is a business you have to operate perform. Now you may hire third party managers. That's fine. You can do that too. But then you need to make sure they focus on those things. Understanding those three things will also help you understand and find great opportunities that actually shows you where the opportunities are so you can take advantage.
00;21;57;00 - 00;22;31;03
AJ
That's what's happening right now. Right now we are finding incredible opportunities similar to back in 2010 when I was buying after the Great Recession, we bought before the Great Recession, we owned through it. But afterwards today we're buying deals that are institutional level that are 40% under replacement cost. We're buying deals where the equity inside it is growing and getting bigger naturally because of the market, but because of operational efficiencies through improving net operating income.
00;22;31;05 - 00;22;56;17
AJ
These deals that we're seeing today, these are deals that only come around. You don't every 15, 20 years at this level or scale. We get a lot of off market deals, but deals that we work with brokers. Now a lot of you may be saying, but I'm not seeing any of those deals. Well, the reason why you're not seeing those deals is because you think that whatever they're listed at and they're asking for equals the value or price.
00;22;56;19 - 00;23;17;23
AJ
That's not true at all. Remember when I say we don't find deals, we make them lots of deals online. You see they're asking $2 million for them. And then it says it's sold. You assume that it sold for $2 million, but that may not be true at all. It may have sold for 1 million or 1.5 million. You don't know.
00;23;17;25 - 00;23;44;11
AJ
The deal is made through negotiations and working, because the value of it is what the buyer and the seller agree to pay. That's the price of the asset. It's not what the seller wants. It's not what the seller has listed for. So most opportunities are purely being missed in the marketplace. Don't focus on price. Instead, focus on your buy box and things like market.
00;23;44;14 - 00;24;14;18
AJ
What the asset is, how you're going to run it, operate it. Does that fit your buying criteria? Then work on what that is worth to you and what you should pay. Then negotiate price after and work with the seller. Lots of people say they can't find opportunities. Don't put employees out. They're not negotiating. They're simply looking. Of course, you're not going to find opportunities because that's not how it works.
00;24;14;24 - 00;24;38;00
AJ
We make them. And right now there may not be lots of deals for sale, and it may not look like there's lots of opportunities. But if you look under the hood just a little, they're all there. And the opportunities are amazing. That is important when we're talking about being successful in storage. I can't control the cycles, but I can take advantage of them.
00;24;38;00 - 00;25;08;27
AJ
And that's the key right now. You can take advantage of what's happening in the marketplace. That doesn't come around a lot. We don't see these structural changes a lot. We don't get runways where inventory has been beat down and new inventory is just not coming out. And so now we have a long runway of decreased supply for years, which changes that demand curve wildly.
00;25;08;29 - 00;25;34;18
AJ
Those structural changes don't happen often. The opportunity for buyers to sell at any price that they want or get that high bid that is not really around today. They don't get that. We don't have the luxury of that. Instead, we're in a buyer's market. They're the ones that are negotiating, drawing lines in the sand, saying, this is what I'll pay and this is what I want.
00;25;34;20 - 00;26;00;18
AJ
Now that is why for the last four years, we had three years where basically nothing happened. Transactions were gone. Why? Because buyers wanted pre high interest rates numbers. They wanted low cap rates. And they wanted to sell it as if the price was attached to a 3% interest rate, even though that didn't exist over the years. Sellers that really had to sell finally had to say, all right, I got to sell it for what?
00;26;00;18 - 00;26;22;14
AJ
The market will pay. That's what we're seeing today. That's why in 2025 it changed so much. Everyone waiting for a quick fix of the market to just flip realized that's not going to happen. So sellers had to sell at what the market would be paying. There's a lot of things going on in self storage, and frankly, you'd rather be lucky than good.
00;26;22;16 - 00;26;54;11
AJ
We can't control the timing, but the timing today is to your advantage to buy if you're operating it. The timing today of the technology, your resources that was only available to literally reads six years ago is huge. You can lower those cost, improve those operations, therefore expanding that net income while markets change and demand goes up. That compounds quickly.
00;26;54;14 - 00;27;21;13
AJ
I don't think a lot of people realize what three years will do in a market cycle like this. I don't I was shocked how our facilities performed in the last cycle. We thought it would take ten years to do what ended up happening in three. It was very surprising because that structural change is so powerful. So look at your market, look at the deals that you want that meet your buy box.
00;27;21;16 - 00;27;42;13
AJ
Look at how you're going to operate them, run expenses and be careful about how you structure it. Allow yourself room for the markets to change and for you to change. And if you do that, you will be very successful in storage and you will survive and thrive for decades to come.
