Table of Contents - Self-Storage and COVID with Kris Benson
Dave Debeau [00:00:09] Hey, everyone, this is Dave Debeau with another episode of the Property Profits Real Estate podcast. Today's episode is all about self storage facility, self storage investing. My special guest is Kris Benson, calling in all the way from Georgia. How are you doing today, Kris?
Kris Benson [00:00:26] I'm doing great, Dave. How are you? Thanks for having me.
Dave Debeau [00:00:28] Awesome. I'm doing great. Doing great. So, first of all, for folks that aren't familiar with self-storage as an investment class, why are you so enthusiastic about it? Why do you think this is such a good place to invest when it comes to the real estate space?
Kris Benson [00:00:46] Well, I think it's interesting. I'm a data guy, Dave. Right. So I try to make most of my decisions rooted in data. And so what's interesting with self-storage and I can give you the link to this dataset, but the National Association of Realtors tracks all of the publicly traded routes across all sectors. And if you look at the historical performance of self-storage, comparatively to the four major food groups, multifamily office, retail, industrial, self-storage has performed them all, outperformed all of them. In the last twenty five years, they've done just under 17 percent. As of where apartments have been, close to 13 retail and office were in that general vicinity. So everything's performed well, but historically the performance has been great. The second thing that I always look for, I'm a big believer that things that are going to happen have already happened. You just have to look in the past to find them. And so the next recession and we're recording this in May in the midst of this covid-19 pandemic. And so we're kind of in the midst of we'll see what happens. But still, storages perform really well in economic downturns. So in two thousand seventy nine, that same data set stores lost less than four percent of its value. Apartments was closer to seven. Retail and office were in the double digits. S&P, five hundred, for example, was down twenty one percent. So it had that downside protection as well as the upside. And then the third reason and this is kind of how I got too reliant. And the reason I like it most is the ownership is very fragmented in the asset class. So the retail of twenty twenty five percent of the market and the rest of it, at least in the United States, is very fragmented as far as the types of owners. And there's still a lot of mom and pops, so people on one or two facilities. So it gives a tremendous consolidation opportunity that exists to buy up a portfolio and potentially roll that up.
Dave Debeau [00:02:38] All right. Well, that makes sense. So it sounds like you're you're a person focused a lot on history. Like you mentioned you. Whatever is going to happen probably already has happened in the past. So that's a little bit of a back story about if you know how self-storage began in the first place, because I actually I mean, I've looked into self storage a fair bit, but I don't remember how it actually got started, you know,
Kris Benson [00:03:04] so I don't know the actual origin story and I'm going off memory. So if someone Googles this later and said about Kris is full of crap to ignore what I'm about to say, but I believe the origin story is there was a guy in Texas who opened the first facility in maybe the 50s and 60s and did it for military people. When they got shipped out, he was giving them opportunities to put their stuff somewhere that was safe and secure. And then when they came back to get it out of public storage, which is the nation's largest self storage, was really the first group to kind of institutionalize it. It went through a number of iterations to where it is now. They own twenty five hundred stores or something across the world. But when you think about storage, inherently, it's a garage. I mean, people love stuff and they may not necessarily have the room to keep it. And so the problem in self storage is essentially solving is giving you space and allowing you to organize. And really, our business has been built around change. Right. So demand for self storage comes from there's a four D death, divorce, dislocation, and what's the fourth B? But you get the idea is you have change in your life and you most likely need some sort of storage capacity. And so it's grown over the years. Dave, when I first thought about self storage, I thought about like, you know, this storage facility out somewhere. We're all behind some guy's house in a gravel pad. And you go inside the house and you meet the guy with these things on his t shirt and he rents the unit behind his house. And I come from a few of
Dave Debeau [00:04:43] those still around.
Kris Benson [00:04:43] Are there they're still they're still very much are. And some of them are some of the best opportunities, property investments, bad things. But that's come to kind of second generation storage where we're building facilities on the corner of main and main and the top 50 MS's of the country. And it's all glass and brick. And the retail office rivals any Starbucks that you may walk into, so. It's come a long way and it's, quote unquote, been institutionalized, I think, in the last 10 years, it's come with much more favor than maybe about the past
Dave Debeau [00:05:15] and it's getting a little a little sexier these days. So, Kris, what kind of facilities do you and your company focus on and what geographical areas?
Kris Benson [00:05:26] So we're vertically integrated storage operators, so we're buying and managing the properties that we own. Typically, we're in kind of secondary tertiary markets across the southeastern United States. Right now we have forty four properties in our portfolio spread across eight states. We're primarily focused on value add take deals and value add maybe different than a little bit then apartments or residential housing. We're not put in self-storage. If I told you we putting in granite countertops and hardwood floors in our storage units that you would buy into that. I hope not, but it can be a little bit of anything. I think how we look at it is we look at the lens of value and her through the lens of how we're going to exit. So when we look at a value of property, we're ostensibly saying, what do we need to do to this asset to allow it to be attractive to an institutional type investor? And that could be one of the leads could come by the facility or institutional money. Think pension funds, insurance companies, those types of sources who want to deploy capital in space. And so sometimes value add is expansion. We may have acreage that's being underutilized and we feel like the market can support another 10 or 15 thousand square feet of storage. Sometimes that value add is an operational play where, as you mentioned, the guy with the spaghetti's t shirt, we're not raising rents. They don't have any ancillary income items. Storage is is like an operational business with a real estate play on the side. So you can add things to the pro forma things like U-Haul, truck rental, tenant insurance, retail, we're selling lots of boxes and those types of things that help boost the incomes going along the pro forma. So, yeah, it's it's one of those businesses. It's constantly changing and ultimately for us, value added and where we find the most value.
Dave Debeau [00:07:20] That makes sense. I mean, you guys are really looking for value, looking to buy the property, right. And increase the value of it by making more profitable, basically. That's the bottom line right now, trying so much. So typically, you guys have how many properties in your portfolio? Forty five right now.
Kris Benson [00:07:37] 40 for the 40 for that we own. And then I think we for that we're a third party managing.
Dave Debeau [00:07:42] All right. And are you planning eventually to sell the whole kit and caboodle in one fell swoop or you sell off the the assets as they as you increase the value?
Kris Benson [00:07:53] I would say that we're kind of opportunistic in that regard. We just sold at the beginning of March of 14 property portfolio to one of the publicly traded reads. There's certainly some additional value you're going to get, at least right now in the market for portfolio level sale. As you kind of get into the bigger numbers, there's more value to large institutional capital, bigger the portfolio. So I would say that we're opportunistic and we look, if we can maximize the value of the property by an individual sale, we'll do that. If we can put a couple together. A lot of it is geographic as well, right? If you're looking for someone to purchase a bundle of assets, they want to be able to say, OK, this makes sense for us geographically to come into these three states for this three hour radius. So I think we look at it with a little bit of a lens, a little bit different in each situation.
Dave Debeau [00:08:45] So, Kris, yourself personally, how did you get hooked on the whole self-storage space in the first place? How did that come to be?
Kris Benson [00:08:53] Well, as a real estate investor, I kind of got into real estate. My background in college right after college was in sales. And when I turned about 30, I realized that I probably couldn't do that another 30 years. No, I was making much money and the job was great, but my lifestyle was awful. I worked a lot. So it was for me about building freedom and being able to control my time. And real estate made sense just as far as being able to create that income. So I started in residential on some duplexes, very quickly realized I hated that it is going to be scalable for us. There was a queen dealing
Dave Debeau [00:09:30] with tenants and toilets.
Kris Benson [00:09:32] Yeah, it was there was a quote that I heard that really kind of solidified for me, which was big deals and small deals are the same amount of work. You just make less money on small deals. And so we got into commercial multifamily. It's a longer story than we probably have time for, but we ended up developing a sixty four unit apartment complex and that's kind of where the bells went off. Or I said, well, this is how you scale in real estate. And so we invested in multifamily for quite a few years. And then, as you probably know, cap rates have compressed in multifamily. It's become very, very competitive and tough to find value and see how it affects us now. But so I started looking at other asset classes and the data that we started with those three reasons were really how I made the transition to self-storage. And first, I was a passive investor actually with Reliant. I went out and talked to a whole bunch of different self-storage operators. I like the guys here and after a couple of years, they needed some help raising equity and building up their investment platform, which I had some experience with. And so that's how we joined the company. So in the last five years, we've done just over six hundred fifty million dollars in transactions buying and selling. So we've had a lot of velocity in the space. And we're curious to see kind of how the next 90 days go with what's going on with that.
Dave Debeau [00:10:50] Well, that's a good question. How do you think? Because you touched on a big point, the demand for self-storage is based on the fact that we as North Americans buy a lot of shit. I mean, we just clutter up our lives and run out of places to put it. And we are our own garage. I mean, you look around any neighborhood, most of the cars are parked outside because the garages are full of crap. The stuff that doesn't fit in our own garage, we have to go put in self storage. If the economy really constricts and we can't buy as much crap as we normally buy. How do you see that affecting self-storage?
Kris Benson [00:11:28] Well, again, I don't I can give you my gut right now.
Dave Debeau [00:11:33] All I can ask it for, for sure.
Kris Benson [00:11:34] I mean, I think the data suggests that in two thousand seventy nine. Right. The last financial impact stores did really well because people were downsizing. People were moving. That change was creating demand for storage with this particular impact. So far, so good. It's May 20 first, and we've seen very minimal impact on revenues and collections and even delinquency. Talking in our director of operations this morning. And he has fielded about 40 calls of people who are saying, hey, I need some sort of break and we have forty four properties and just over thirty thousand units. It was a pretty small percentage. But I would say, Dave, that I think it depends how long everything stays locked down. Right. As I think we're all kind of holding our breath to say, hey, as the economy opens back up, are people able to generate income? Because if this goes through the summer where incomes are being constricted, then I think it's not going to matter what asset class we're all in. There's going to be some catastrophic effects to that for sure. And so from my perspective, I believe that storage is somewhat insulated because it's a small percentage of your monthly income and your collateralized by your stuff. Most people don't want to get rid of it right now. I'm sure your
Dave Debeau [00:12:51] listeners have predicted that stuff. So quick question for you. So if somebody stops paying their rent for their self-storage facility, how long is it before you guys can put the locker up for auction?
Kris Benson [00:13:06] It's state by state dependent. So the rules. Yeah, I mean, sometimes some states it's as short as 15 to forty five days. Sometimes it's 60 to 80. It really is state by state. And what those tenant rules are the auctions for us. And I know at least some us there's a TV show called Storage Wars.
Dave Debeau [00:13:24] There's a Canadian version too. So yeah.
Kris Benson [00:13:27] So it's it looks sexy, but it's a huge pain in the butt for us. We don't make any money off of it. Even if we sold a unit for a million bucks, they pay us the late fees and pass to rent and that's it. And then the rest of the money,
Dave Debeau [00:13:41] the auction company keeps all the money
Kris Benson [00:13:42] or. No, actually, the tenant is supposed to get all the money for the auction money. Auction company makes a percentage of what they sell off or pays their fees to, pays us our fees. And then the money goes to the state and the state tries to track those people down, goes to
Dave Debeau [00:13:59] the state, supposedly gives it to the tenant. Theoretically, I didn't know that. That's interesting. I thought it just out of ignorance. I thought it went to the storage company. All that stuff,
Kris Benson [00:14:10] we'd be auctioning everybody's goods off and
Dave Debeau [00:14:12] yeah, you'd be encouraging people to default. All right. Well, that makes sense, Kris. Very, very cool. Thank you very much for for sharing some insights about the self-storage business. If people want to reach out, they want to find out more about you and your client. What should they do
Kris Benson [00:14:28] for the Reliant side? If you're interested in our platform, potential investments with us, they can go to Reliant Investments, dotcom. There's much free education on there as well as videos in regards to what you should know as far as commercial real estate investing. And then if you check with me personally on LinkedIn, we're pretty active. We do a fair amount of posting there and my name is spelled with a K, so it's curious. But if you search that and rely on, I'm sure you'll be fine.
Dave Debeau [00:14:54] Thank you very much for sharing your knowledge.
Kris Benson [00:14:56] Yeah, my pleasure. Do stay safe.
Dave Debeau [00:14:58] You do, my friend. All right, everybody take care. Stay safe and we'll talk to you on the next episode. Well, thanks very much for checking out the property profits podcast and you like what we're doing here. Please head on over
Dave Debeau [00:15:09] to iTunes, subscribe read us and leave us to review it. Very, very much appreciated. And if you're looking to create a regular flow of inbound investor inquiries about your real estate deals, then I invite you to attend one of my upcoming live online demonstrations. And you can check that out at Investor Attraction Demo Dotcom Ticker.