Today Clint Coons explores the evolving landscape of the self-storage industry with guest Ryan Gibson, CIO of Spartan Investment Group. Topics include shifts in customer demographics, such as millennials becoming the largest segment, and the impact of the 4 “D’s” (death, divorce, dislocation, and downsizing) on demand. They also discuss rising rents despite a decrease in demand, innovative revenue streams beyond traditional storage, and the crucial role of facility management in investment success. Technological advancements and future investment opportunities, alongside considerations like market conditions and customer needs, round out this insightful exploration into the future of self-storage.
Ryan Gibson serves as the co-founder and Chief Investment Officer (CIO) of Spartan Investment Group, specializing in acquiring and developing self-storage facilities. With a track record of organizing more than $200 million in private equity, Ryan oversees investor relations and capital raises for SIG projects. His expertise extends to managing complex developments in diverse markets. Alongside his role at SIG, Ryan brings extensive experience as a commercial airline pilot and holds a bachelor’s degree in Business from Mercyhurst University, with concentrations in Marketing, Management, and Advertising.\
Highlights/Topics:
- Changes in the self-storage industry, changes in the 4 “D’s”
- Specials for first-timers, increases in rent
- Industry stats – less demand, but more revenue
- Millennials are the largest customer segment
- Other revenue streams in self-storage
- Logistics and timing around building new facilities
- Considerations – the market, your customers, raising rents
- Clint’s self-storage investment – facility management is key
- Flipping storage properties
- Challenges and failures, interest rates,
- Tech advancements in the industry
- External access vs. internal buildings in the same facility
- Looking to the future for investing
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Full Episode Transcript:
Clint: What’s up, guys. Hey, it’s Clint Coons here with Anderson. In this episode, we’re going to be talking about self-storage with the King, as I would call him a self-storage. He’s an individual that I have invested with. I’ve actually served on his board as well, so I know all the stuff that goes on behind the scenes.
I’ve seen it with self storage, but I couldn’t tell you how to invest in it or why you should invest in it. That’s why I wanted to bring on someone who is an expert in this area. His name’s Ryan Gibson. He’s the president, he’s a co-founder of Spartan Investment Group. Ryan, thanks for joining me.
Ryan: Hey, good to see you, Clint. Glad to be back on.
Clint: You just got back from Austin. You said you went down there on vacation before we get into everything. I’m just curious. Why did you choose Austin of all places?
Ryan: I was going to see some friends down there actually and got to test out the new cyber truck and the cyber beast, which was a fun thing to drive.
Clint: It puts you back in your seat?
Ryan: It did. My son loved it, not because of how fast it went, but because there’s a screen in the back that you can actually watch YouTube on. He was digging that.
Clint: I remember one time I test drove a Tesla with my wife and she was in the backseat. They had the ludicrous mode zero to 60 in under a one second or something. The guy told me to punch it and I punched it. Literally, I got tunnel vision. What brought me out of it was my wife screaming in the backseat at me for what I just did. Don’t do that again. I said, what? I hit it one more time.
Ryan: Yeah, zero to 60, like 2.3 seconds or something like that. It was wild. Launch mode is what it’s called, I think.
Clint: All right. People don’t want to hear about Teslas. They’re joining us because they want to learn about self-storage. I’m curious, we haven’t talked in a while on this. Things have changed. Real estate investing in general has changed. How has self-storage changed currently from what it was doing a year-and-a-half ago?
Ryan: I think what’s really important to know is, the reason why people use self-storage—I think we’ll start there—which is the four Ds—death, displacement, downsizing, and divorce. That’s why people are going to use self-storage. When you have those reoccurring life events, people are going to use self-storage.
We’ve also had a society that has increased in its consumerism over the years, so we know that Americans have too much stuff. Dating back to 1991, the industry saw about the average American using 2 square feet per person in the United States, and that today is about 6.5 square feet per person.
If you think about the increasing trend, more and more people are using self-storage than ever before. People are probably thinking like, yeah, I see it going up in every neighborhood or every street corner, and that’s because it is, because people are demanding to use more of it.
What’s interesting is that 30% of those customers, the four Ds—death, displacement, downsizing, and divorce—use it for business purposes like an office, a bar, a restaurant, a sheet metal contractor, landscaper, food distributor, et cetera. That makes up about 30% of our business. That always continues to go.
What about today? How are people right now using storage, or how is it reacting to the economy that we’re in? Very interesting. People aren’t moving right now. There’s no displacement in those four Ds necessarily, because displacement is people moving in to buy their first house, maybe it’s because they’re losing their house, or they’re just upgrading their family and they need a new place to live.
As you know, right now, as of May 28th, we’re in a high interest rate environment, and home sales are down for the second month in a row. That means that people aren’t moving as much. People aren’t transacting in self-storage as much as they normally would because they’re not moving. It’s a super interesting time. You may be thinking, okay, well, how much of that customer base is self-storage customers? That’s about 25% of our customer demographic or our customer base.
We’re not seeing as much moving activity because people have fixed rates, and they don’t need to move. Maybe you’re listening to this podcast and thinking, yeah, I probably would sell my house and buy another one, but I’m sitting on a 3% fixed rate loan, and there’s no way I’m going to move. That move usually is what creates a self-storage event.
The last thing I’ll say, what’s interesting is I saw a Wall Street Journal article about maybe three months ago that said, people are getting divorced and they’re actually not moving out of their homes, because the rent’s high, mortgage rates are high, and they can’t move out. There are two of the four Ds that normally people would transact on.
I think it’s interesting that we’re waiting for this pent-up demand to come back to the industry. Think about it, if interest rates go down, if you’re a believer in that, if interest rates go down, everyone’s going to have that pent-up demand. They’re going to finally move that move they put on hold, there’s buying and selling their house, the things that they put on hold, they’re going to do it now because they’re like, oh, finally. There’s some relief.
Now, if interest rates stay higher and you’re in that camp, now we’re going to be in a situation where people are going to start feeling displacement, where maybe they lose their house, they never upgrade, or they realize that they’re in this smaller space for a longer period of time, and they need to go get a self storage unit.
I think there’s going to be a lot of pent-up demand in the industry to come, but here’s the best part. Here’s why it’s still recession resilient. We actually had, as an industry, same store growth over the past year of 4%, even though we have 25% of our customers gone. You might be thinking, oh, my God, how the heck did that happen? How do you have revenue growth, but 25% of your customers are gone?
That’s something called ECRIs (existing customer rent increases). It’s a fancy way of saying we can raise people’s rents every 30 days. The customers that we have, we’ve raised rents more on, and that has created revenue growth. It’s been a thing in the industry for the REITs, where they may offer some more specials for people to move in, but they’re going to increase the rents sooner and continue to grow revenue than maybe they did in years past.
You’re probably thinking like, hey, I rented a storage unit, and he’s right because I moved in, it was first month free, everything was great, and then it’s five months, bam, I got hit with a rent increase where normally the industry might only do that at nine months, but now they’re doing it at five months or maybe even four months to make up for that discount on moving in.
That’s where we are. We’re growing in revenue and the industry is pretty solid, but we’re actually excited about the future and the pent-up demand that’s brewing right now with the way the market is.
Clint: I can see that working really well in your favor because just think of it. I move all this stuff, fill up a unit, and you jack my rates on me. I’m forced with this option to go find another place and unload everything. Self-storage is you don’t want to have to keep moving. You’re taking care of it’s put there. You’ve got this captive market and you’re able to do that, but you said 25% is down. Does that mean you have vacancies of 10%–25% in your existing storage facilities, or you just mean you’re not seeing the growth in new customers?
Ryan: I would say the growth of new customers is there. It’s the existing occupancy as an industry is down about 5% with rent growth up, so it’s interesting. It’s confusing because you think, okay, there’s not as much demand currently, but there’s more revenue from higher rates realized at the property level. But then when you look at maybe a facility, we look at markets all the time. It’s hard to gauge where the rents actually are because there are so many discounted rates at the street level that will eventually be raised very quickly.
I’d say same store occupancy is down physically because of that missing customer segment base. It’s about 25% to be clear of the four Ds, so that’s about 70%. It’s about 25% of our 70% is mostly gone.
Clint: To me, that would be a little unnerving to go into a sector where you know that the demand has decreased, and then you have to figure out ways to increase the revenue to make up for that shortfall. With self-storage, it’s not like an apartment or a rental home, meaning that you don’t have a lot of regulation as far as rent increases and how you deal with your renters.
Ryan: There are no tenant landlord laws in storage. It doesn’t matter if you’re investing in the deal we just did in Portland, if you’re investing in Texas, Florida or Washington. They don’t exist for all intents and purposes. We do have laws that we have to follow surrounding the increase in rents. There are no evictions, there are auctions. If you don’t pay, you get auctioned, your belongings get auctioned off, and you turn over that customer.
One thing I wanted to address too, you said the demand is not there. The demand is not there currently because of what the market is doing, but the demand for self storage has only increased over the years.
When you look at this temporary opportunity, demand is missing because of the housing market not moving as fast. But as soon as there’s that transaction volume that comes back, that’s going to only be additive to what we’ve grown in revenue today.
When you think about tenant landlord laws, you can get into some markets that have good growth. I know that people don’t like investing in maybe a market like Seattle or the Pacific Northwest, where there are kind of tenant landlord laws that are restrictive to being a multifamily owner. You turn on the TV and you hear about all the squatters rights and all that stuff. That doesn’t exist. We don’t have that anywhere.
Think about it. If you looked at the whole country and you said, if I could just completely get rid of all the tenant landlord laws, where would be the best places to invest? What would be the jurisdictions, or what would be the markets that I’d want to be in?
I’d want to be in the markets that have the best population growth, high income, you want millennials for storage because storage is primarily used by millennials at this point, that’s where they’re our biggest industries customer segment, and you’d want job growth, income growth. You’d want all these things.
When you start stacking the cities that have that, they tend to be the cities that necessarily don’t have the friendly tenant landlord laws, unfortunately. In storage, you have to think a little bit differently. You got to go to the markets where maybe multifamily isn’t great.
Clint: It’s funny you say that because just the other day, somebody approached me and they said they were looking at a multifamily in Seattle. She wanted to know what my thoughts were on it and if I would be interested, and it was just a two word answer. Hell, no. She said, why? I said, you have an hour as to why I would never invest in Seattle. You’re right. Those are real concerns for people when it comes to making money.
When you’re talking about this and you’re looking at self-storage, rent increases are just part of it. Aren’t there other ways in which you can make money? Obviously climate control and things like that. What other ways can you squeeze a little more revenue out of your properties if you’re thinking about doing self-storage?
Ryan: That’s a good point. One of the focuses with the down occupancy that we’ve been making up for is we have insurance that we sell. When you think about doing the math on a property, our average acquisition is about 500 units. You may not have the acquisition that the seller that you’re buying from probably doesn’t do tenant insurance, meaning that they don’t require their tenants to have renter’s insurance, basically, for the facility.
As an owner, you can require it. You can require that everybody has it. You just can’t require that they take your policy. We sell a policy. When we take over a property, one of the first value add strategies that we put on a storage unit is we sell insurance. We mandate that all customers have insurance. We make it very convenient for them to take our plan.
What we do is we have about a $13 plan and an $18 plan. Two different plans, one comes with a little bit better rate, and the other one is a little lower cost and not as big of a deal. We make it very convenient for our customers to sign up for it.
If you take over a property that has 500 units, which is the average, that’s $6500 a month if everybody takes your $13 plan. You multiply that by 12, that’s $78,000 a year. We don’t get to keep 100% of that tenant insurance, but we get to keep 70% of it.
If we’re keeping 70% of $70,000 a year, that’s an extra $54,600 a year. For conservatism, let’s put a six cap on it. You’re just shy of a million dollars of value add right away. When you think about the ease of adding value without actually having to build anything or fix up anything, that tenant insurance is a big deal.
One thing that we measure on our stores and our facilities is that, what is our tenant insurance protection rate adoption? We judge our store managers on how well they sell the insurance and how much penetration they get when people move in. That’s usually in the 85% range for us.
Then we look at the average protection that the facility has, and we usually get that around 72% is what our current is. We’re always looking to raise that up because it’s an instant revenue source for self-storage.
You can do other things like rent U-Hauls, sell merchandise, put a cellphone tower on the building, and do a triple net lease to a cell phone tower company. But insurance protection plans are really a big mover in revenue, probably one of the second best to just running the actual units themselves.
Clint: All right, this is going to go to my next question about market saturation. If I was looking at a property in a market that maybe has a lot of self-storage already there, before you answer this question as to what things we look at, if I was considering that and I was thinking about the insurance, something that comes to mind is my churn. How long do these people stick with the insurance, or is it like that gym membership we’ve always owned, and once you start paying it, you forget about it because it’s such a small ad, you don’t even think about it?
Ryan: People stick with it, they don’t usually drop it. They have to provide notice of cancellation or proof of coverage at the time that they rent. It’s something that we keep up with, but the average tenant stay is probably maybe a better way to look at it. In our portfolio currently, it’s 30 months. We usually see them carry that insurance the entire time, so 30 months is our average day in our portfolio.
It’s a very sticky business to your point. The average cost of a unit nationwide is about $88 a month, and with insurance plans at about $13 it’s $100 a month. Like we talked about earlier, it’s not a very fun endeavor to move all your stuff out of the unit, so it’s a very sticky business when it comes to that. It’s almost like a subscription service that you just don’t want to cancel. It’s like canceling the gym membership.
When you go to cancel the gym membership, for some reason you have to go in person usually, and then they guilt you into wanting, oh, I’ll just keep it. What’s another month or two? I’ll end up using it eventually.
Clint: With yours, the way to cancel is you have to meet someone in a parking lot. It changes every day. You call in to figure out where they’re going to be. I love it.
Ryan: That’s not a bad idea. You hear it here first. That’s a pretty good idea.
Clint: We have a mobile cancellation service.
Ryan: Exactly. We just don’t know where the guy is today. He’s an hour away from your neighborhood.
Clint: To this market saturation, when I drive around, you do see a lot of self-storage that was under construction over the last couple of years. They seem to be popping up more and more. If somebody’s thinking about this market segment, how does that play into your investing criteria right now?
Ryan: It’s interesting. We’re building a lot more than we’re buying existing because with interest rates at 7.5%–8% right now, and cap rates still as an industry in the mid-fives to high fives as an average of quality assets, it’s hard to make cash flow. To really get that yield, we go to markets that are underserved and have really high rents, where we can build for less than the cost to buy.
When you think about a market with super low rents and high saturation, you can’t build for less than you can buy, because you can go buy a property at a really low rate because the rents are low, the NOI is low, and the value of that property is going to be low. But if you go to a market that’s got really strong rents, maybe $2 rents or $24 annualized, you’re going to be able to build a facility for less than what you could buy a market rate facility for based on the NOI in that market.
I think it’s critical. If you’re going to build one, especially understanding what the market rents are and what your competitors occupancy is. If you’re not at least 94%-plus occupied in a market with rents of at least $20 annually, which is about $166 for a 10×10 you’re probably not going to be successful.
If you go into a market and rents are super low, maybe rents are only $1 a foot, maybe $12 annually, the occupancy is good, and you might say, oh, that’s why everybody’s full, but you can’t make the numbers work on something like that.
When you’re building, you want to think about what are the market rents and what is the saturation? You can get a feasibility study done. You can pay someone to go and do a feasibility study in a market. We actually are happy to help people out with that. We can pretty much tell you pretty quickly, I wouldn’t do that deal because there’s just too much saturation, not enough pricing power. But there are some really great markets out there that are still underserved.
I think what people do is they see the success in a particular location. They try to pile onto it, and they don’t look at building permits in the pipeline. They don’t do a feasibility study. They don’t look at occupancy, and rents are starting to decline in that market. They get over their tips. There can be overbuilding, but it’s really important to know that it’s all about the hyper local market.
It’s just like retail. You have to know what’s going on in that specific three mile or five mile market. Otherwise, you could be guessing wrong. If someone says, oh, the market in Dallas is really bad for storage, it depends. It depends on where you are in Dallas. Rate in that three to five mile ring is the most critical.
Clint: How long does it take you to get to that 94% from the day you go online?
Clint: It depends on the size of the property. To answer your question directly, about three years. If you look at a 70,000–75,000 square foot property as being our average build size, net rentable square feet, it’s going to take a few years because it’s going to take you about a year to build it, and then it’s going to take you at least a couple of years to get it filled.
You might hear some stories of people, oh, well, my friend built it and leased it up in six months. How big was the property? Where was it located? How saturated was the market? What were the rates? It may not mean success, it might mean that the property was 10,000 square feet. Yeah, he could fill it up in six months. That makes sense. It really depends on the size.
The bigger the size, the more money you spend, the more debt service you have, the more expense load. You really want to make sure you’ve got the runway. If you’re going to build a property, that’s 75,000 or 80,000 square feet, you’ve got the runway to lease up that property once you open it and manage your debt service. That’s where we specialize in building properties that are about 75,000–80,000 square feet.
That’s right where you get the most efficient because you can pay a staff member to be there, you can automate, and you just get that really good balance of covering your payroll costs and operating the facility the most efficient way possible. If it gets smaller than that, you start losing that efficiency. You start getting a little top heavy in expenses.
Clint: Building it is one thing. You brought up a lot of good points that you’d have to consider, but running it’s got to be a challenge as well. Shouldn’t you have a crack team that has experience doing this? I can imagine maybe even when you started out, you ran into some problems just trying to figure out that aspect of self storage, because it’s not like a rental property like a home. That’s pretty straightforward. This is a different area.
Ryan: Totally. I think it starts with your site. You want to have 20,000 cars a day, typically driving by your site, you want to have good wide access from the main road, you want to have the right facade and marketing strategy on the building, and then you want to have your correct digital strategy behind attracting customers to your property. Having all that in itself is in the hands of an expert. It would really help you do that.
The lease up, how do you strategize your pricing strategy? What’s the other market doing? How do you discount to market? When do you raise rents on your existing customers and the timing of it? We take so much time going through and really using more of a scalpel approach to know exactly what units, when, and the least amount of friction we’re going to have with who we raise rents on to optimize that revenue as we go along. It’s not just something you just guess at or just raise them all. We’ve tried that, but it doesn’t work very well.
You’ve got to really think about what tenants have been in there the longest, what unit occupancy is the most well-occupied, and what does the market look like. To your point earlier, am I going to pack up and move to another property? Or maybe if I go from $50 a month to $250 a month, I can do some quick math and see that while the neighboring property is brand new, has no occupancy, they’re desperate, and they’re going to discount the rents, maybe I am willing to go to that other property. You have to be really careful about which customers you are raising rents on as you’re leasing up. It’s a big strategy that you have to look into.
Clint: When you talked about figuring all that stuff out, it’s important because I went into self-storage about a year-and-a-half ago. We were breaking even. It’s not where I thought it was going to be. It was an owner carry. We’ve got a great interest rate on the deal, but it just not performed at the level that we’d anticipate it would perform at.
Really what it comes down to is finding the right person that knows how to run it because people make an assumption like I did, and I assume they’re going to do the same thing. Hey, it can’t be that different. We’re just renting something out, but there’s a lot behind it now that it really opened my eyes. That’s why I’ve invested with you so I can see the difference between what I try to do on my own. I realized, hey, this is not my area.
You bring up really good points there that if you want to get involved in a segment like this, yeah, maybe you can get lucky. Maybe you can find someplace it’s priced way in their market. Somebody is willing to dump it. You got a lot of runway there to make income, or how about flip it? Do people buy these and then turn around and flip them to someone like you? Is that very common?
Ryan: Oh yeah, totally. There are a lot of groups out there that will aggregate a small portfolio and sell them. That’s a great strategy, not as popular these days. In 2021, that was huge. People would aggregate these little mom and pop properties, put some effort into fixing them up a little bit, and then sell them to more of a national operator like Spartan. But there are still so many opportunities for people because 70% of these are still owned by mom and pop operators.
You can get in there and you can offer 24 hour, seven day a week online rentals. You can implement a call center. You can implement revenue management, get that NOI up, then get the property on its way, and sell it to a bigger group. That’s our strategy, quite frankly. We were looking at aggregating lots of mom and pop properties, then aggregating them up, and then selling them to a bigger REIT or a bigger institutional buyer.
We view ourselves like that medium sized fish. We go out and we buy all these properties. We have four in Chattanooga, we have several around the Atlanta metro area, we have a bunch in Florida, we have a bunch in Texas. We’re aggregating these properties, and then companies come in and say, hey, we really are looking to grow our presence in the Dallas Fort Worth metro or whatever it might be. We can sell those properties at a premium to a bigger institutional buyer.
As a flipper of this stuff, you can do the same thing. You could build some and buy them. We just bought a property in Kingsland, Georgia. Actually, a contractor built it and he was a home builder. He’s like, hey, this is a good market for storage, I think. He thought right, so he built a property.
He didn’t want to operate it. He was like, I can build this thing. It’s pretty straightforward to build, but at the end of the day, I’m not going to want to run this thing. Plus, I want to get my money out of it so I can go build more houses. We were the perfect buyer for him, and then we ended up buying two more properties in that market and took over the space there. There are quite a bit of opportunities for people to either buy them, flip them, or even build them.
Clint: What are some of the failures or challenges that you’ve run into in your career doing this?
Ryan: I would say the rising interest rate environment has been difficult on everybody. Typically, almost 100% of our properties have fixed rate debt. We’ve only had one property that had a floater in it, which has been troublesome. That’s a mistake. You want to get good fixed rate debt.
Debt is hard in storage because when you buy a middle of nowhere property, you can go SBA financing, or you have to go to the bank next door. If you’re operating all over the country, you’ve got to have a really good ability to find a local lender that’s willing to do the dance with an out of towner or somebody who doesn’t have as much experience in storage. I would say that would be a big challenge.
I would say don’t underestimate how long your lease ups will take. That’s something that we’ve learned over the years. Your lease up deals are going to take longer than you think. Everybody likes to, well, I talked to my buddy and he leased it up in two months or whatever. They leased it up overnight. I would say, make sure you plan a runway for that because you’re going to have to run a business at a loss for a period of time. That’s a trap that people can get into.
I would like to say that we’ve developed in over 13 states and probably 20-plus different jurisdictions. I would say that real estate development is the same. The analogy I like to give on this is, you know how in school, we always do that thing where it’s like, look at this picture and look at this picture, and they both look the same, but you have to find what’s different. There are really subtle differences. That’s real estate development.
Every jurisdiction is the same, but big differences and subtle things that can change your cost and extend your timelines. I would say, don’t overlook anything. If you’re talking to a city planner and they tell you something, guess what, that city planner, just because they told you that, it might work if they stick around, but what happens when that person turns over and you don’t have it in writing?
The new sheriff in town comes in, and he’s going to be by the book. That’s not written, so now it’s up to him or her. I would say, real estate development is a big lesson learned, and you just have to have a good team. If you’re looking at a different market or whatever it might be, that’s super important. Those are the three things that I would say I’ve learned the most over the last 10 years being in this space.
Clint: Talking about these units then, if you were to go in and start something like this, how much has technology creeped into self-storage versus the way it was? I remember when I had my first self-storage unit, it had a lock. They gave me a key and they said, here you go. It was really advanced because they had a little key pad you would push to open the gate to get in. At least I didn’t have to get out of my truck. What are you guys doing right now? And where do you see the industry going with technology?
Ryan: I think largely, things have not evolved that much. Here’s where I think some of the exciting things are. They don’t really have to. It’s really interesting, like that keypad. In our facility and probably many facilities out there, when your credit card is on file, and another thing we focus on is auto pay, we want to get as many customers as we can on auto pay, because you forget about it when it’s on auto pay. When you have to write the check or send in whatever the money, you’ve got to think about it. You’re like, oh, do I really need this? And you are reevaluating every month.
Anyway, the keypad connects to our property revenue management software. If you don’t pay after three days, your gate code doesn’t work anymore. No one has to go in and manually do anything, it just shuts off. You go to the gate, and you’re going to go through the same thing. You’re going to put in your gate code and your gate doesn’t open. You’re going to call the manager and the manager is going to say, well, yeah, cause you haven’t paid. If you pay, it’ll unlock the gate. That’s a super cool tool.
In multifamily and other asset classes, that’s a great asset class, but you can’t just lock your tenant out of the building if they don’t pay after three days. It’s a very, I think, a very cool technology to scale.
The other thing that I would say is we’re starting to implement kiosks at all the properties. We’ve launched this at five sites now. You can go to a property. There’s a whole kiosk screen that has a camera on it. You say rent now, and a person is on the other side. A live person that you can see on our team is talking to you at a call center.
At Hertz, enterprise, or wherever you rent from, the line is super long, you’re not on the fast track, or maybe fast track is shut down or whatever, and it’s like, hey, you can wait in this long line, or you can just click on this kiosk thing and you’re going to be on your way. Keys come out or whatever, and you’re on your way. I’m going to the kiosk, I’ll tell you what I’m going to do.
Same thing for storage. If one of our managers calls out sick, or if there’s a day that we can’t have a manager there, we have this kiosk. We have this really good person on the other end who’s excited to see you and rent you a unit. I would say that that is a huge part of scale and technology that we’re implementing right now.
I would say the other thing is you can run a unit online all by yourself without talking to anybody. Never mind the fancy kiosk that’s there, you don’t need that. You have your phone, your phone is a kiosk. You can go to our website. Scan our QR code that’s on all of our gates and all of our offices. It says, rent me, rent right here, scan the QR code. You’re on our site, you’re booking a unit, you’re signing a lease, and you’re paying.
Right there, you get a key code to go into the property. You got a unit assigned to you. You open the door, there’s a lock in there and a welcome bag. You can move yourself in without having to talk to anybody. I think that’s one of the most beautiful parts about our industry. You can move yourself in without having to actually ever interact with anybody.
Of course, there’s a segment of the population that wants to talk to somebody in a call center. We have that. There’s always somebody who wants to come in and shake hands with the manager, and that’s okay. We have that too, because you’re never going to get away from somebody being at the property. You still need somebody there to clean, to manage, to help move somebody in or out, or whatever it might be. You sell merchandise, sell tenant insurance, or ask for that good Google five-star review that’s going to help you show up on Google.
There’s always a need for somebody there. You’re never going to get rid of that all the way. Plus, customers sometimes like to see somebody in the office, like, hey, there’s someone here paying attention. I think that helps with the overall ecosystem, but all this technology is just helping them do their job more efficiently.
Clint: Lots of cameras around to give people a sense of, it’s a secured facility that if something’s going on, we’re going to see it right away and call the police.
Ryan: Every time you walk into our office, you’re going to see a big screen right there, and it’s going to have anywhere from 8–15 cameras. The messaging there is we’re watching, and we’re keeping tabs on the property. That’s huge because people that book want to know that they’re going to be safe.
I would say our customer is a 70-year-old lady. They want to walk in and know they’re going to get a good experience. It’s going to be safe, well lit, well secure, and there’s not going to be any issues. You’re not going to want to put your stuff at a junkyard, you can do that anywhere. We try to refresh our properties so that they feel that way.
Clint: You mentioned technology and how different people like different experiences. Is it the same though with self-storage that if someone’s renting a unit, some people want the exterior type unit where you can enter from the exterior, you don’t have to go into the building? Do you notice those in certain areas that are demographic only like certain types of properties?
Ryan: Absolutely. I wouldn’t say it’s demographic per se, but it’s use. Our bread and butter is building a property on a main road with 20,000 plus cars in a fast growing area, and then we usually get five acres of land. If you’re out there driving around and you’re like, hey, I want to find this guy’s property, we absolutely will take a look at it. Five acres, main road, strong $20 plus annualized rents.
We want to lay down five or six buildings on the site. Half of them, to your point, are going to be the climate control to go inside, air conditioned, heated buildings. The other half are going to be drive up exterior units, because there are some people who just don’t need the climate controlled. They drive in, they’ve got a landscaping truck with a flat bed with the equipment on it. They might want to whip it around, have a nice wide drive aisle, they put the stuff in their storage unit, and they get out of there. They don’t care about it being in a climatized storage unit.
But then you have somebody who’s moving, who has heirlooms or something that they want to keep moisture-controlled. They don’t want it out in the hot sun or whatever. They don’t want it in a humid building, so they have the climate controlled. They’re willing to get out, open the doors, and walk down a hall and be in a climatized building. You want to have about a 50/50 mix of that in the markets that we’re in. It doesn’t apply to every market, but in most markets, that’s what people demand.
If you go to downtown Seattle and you try to have a drive up unit, you’re going to be throwing good money after bad. It’s just not efficient. People in downtown Seattle are in smaller units and they need smaller storage units. They’re not going to have big 10x20s and 10x30s. That’s for the suburbs where we are, or the tertiary markets. Absolutely, there is definitely a profile demographic that we go after. It’s usually mixing some climate and some non-climate controlled units, and that’s what we’re building right now.
Clint: You’re saying, hey, when the interest rates go down, you’re going to expect to see that that one segment, they’ll start renting more because presumably they’re going to be buying and switching and moving in homes. Are there other challenges though that you see 5–10 years down the road with self storage that you’re thinking about right now? If so, what are you doing in anticipation of that?
Ryan: I would say that overbuilding is always an issue. We look for markets that have a high barrier to entry. We’re buying a property right now in central Florida. We bought a property in central Florida that we’re building on that has no more allowed use for storage, so they will not zone any more property in self-storage. We built one in Oregon about two years ago, and they will not allow any more storage properties in that market.
I would say people building behind in excess, you put your facility in and then people build in around you, that’s a real threat. If the demand isn’t there, if the population growth isn’t there to absorb that extra saturation, that is absolutely a threat. Anybody in this space, that is a threat.
How do you mitigate that? You either are going to build in a market that has so much unmet demand that it doesn’t really matter. There could be a couple built behind you. We’re building one in Savannah, Georgia right now. There’s so much unmet demand in that market that somebody built alongside of us, it really wouldn’t bother us for a minute. You want to turn that property over as you pay attention to what the market’s doing.
As an industry whole, there are really no disruptors at this point. More people are using storage than ever before. People are consumers. It’s easier than ever to consume. Click on a mouse, and you’re buying it on Amazon. Consumerism is only increasing, it’s not decreasing. People aren’t buying less stuff, people are buying more stuff.
Houses are only getting smaller, and that means that people’s stuff needs to go somewhere else that is more efficient economically. If your houses are getting bigger, you have more places to put your stuff. Houses are getting smaller, guess what? You’re going to have to find something to put it in that has a lower cost per square foot.
The trends as an industry are up, but micro markets, you might run into some headwinds with people overbuilding. Those are just things that you’ve got to keep in mind and you’ve got to pay attention to as you get into the space.
Clint: Wow. How long have you been doing this again?
Ryan: Ten years.
Clint: You’ve learned a lot in 10 years. If someone wanted to get in touch with you to talk about this, because I know you’re really generous with your time, you’ve helped out a lot of people I know get started in self-storage, and actually, even investing with you in some of your deals is a great opportunity for people to get an understanding for how self-storage works, what would you recommend that they do?
Ryan: You can go to our website, spartan-investors.com, or you can email me. I’m always happy to chat with you about it, ryan@spartan-investors.com. We’d love to connect with you about anything that you want to talk about in self-storage.
Clint: And you have an interesting podcast as well, where you interview people and you talk about those topics. If they wanted to find out more about that?
Ryan: I was an airline pilot for 17 years, so I like to help the aviation community learn about flying. I started a podcast called Passive Income Pilots, and we have awesome guests. We actually have a Seahawk coming on tomorrow or today it releases. We have great guests to include the folks at Anderson Advisors, Clint Coons is on there and Toby Mathis. I think Clint, when you were on it last time, I was in a storage unit.
Clint: I know, I mentioned that when we first started.
Ryan: It’s not a storage podcast per se, but it is a really good podcast on real estate professional, tax and legal strategies, and things like that, all the things that Anderson does and more. We bring on a lot of really great guests to talk about this kind of stuff, syndications and things like that. It’s really fun.
Clint: Awesome. Ryan, thanks for taking the time. I know people are getting a lot out of this, and we really appreciate it.
Ryan: Thanks, Clint.
