What are some ways to increase income on a commercial property? Joseph Woodbury, CEO of Neighbor, shares his knowledge.
Tell us a little bit about yourself.
I'm the CEO and founder of a company called Neighbor. We're a peer-to-peer storage marketplace. We allow people who have space to list that on our platform, and then we rent it out for storage, vehicle storage, or parking. We're now in every city in all 50 states nationwide. We work with both residential space and commercial space.
Are there any other use cases that you focus on?
On the residential side, it's going to be an empty garage, a driveway, and a shed. On the commercial side, it's going to be different by asset class. Retail may have vacant suites that they've struggled to rent out and then will rent out for storage. Multifamily may have storage lockers that were built inside for their tenants, but maybe they're 25% occupied, so we rent them out to the community. And then, all properties tend to have some sort of parking requirement that the city made them build x number of parking stalls and we're able to take those out whether in a lot or a parking garage, and rent those out for vehicle storage.
What kind of fees do you charge and how does it benefit the property owner?
We only make money when our partners make money. We don't charge any upfront or recurring fees; it's free to use the service. Just like an Airbnb or other marketplace, we'll take whatever you decide to charge as a host, and we'll charge the renter a service fee on top of that, and that's where our money comes from.
It is a sliding scale take rate based on the size of the dollar amount of the rental. For smaller rentals, if it's $30 a month, we're going to take a high percentage take rate on top, to make the money that you need to, versus we have some spaces that rent out for thousands of dollars a month, we're going to take a very low percentage take rate on top of that. It varies by the amount. But again, very similar to what you'd see on Airbnb, where it kind of slides based on the amount of the reservation.
As a potential renter renting from somebody else, the biggest thing would be a homeowner or maybe taking some items. How do you address that?
Our platform generally offers safer spaces than traditional self-storage. The breaking rate of traditional self-storage is like one in 10 facilities every year is broken into, and that's largely because they're all located in nice industrial parks on the outskirts of town. Whereas the space we're renting out is in residential neighborhoods or in business districts, which are just much safer areas. According to FBI stats, residential areas are 10 or 15 times safer. In addition, we provide a lot of protection so our hosts get a million-dollar liability guarantee for running their business. Every renter has to submit every item that they're going to be storing, so that can be reviewed by the hosts. We offer the best property protection plans of any storage company in the country and we're the only one that will offer you up to $50,000 in protection for everything that you store on our platform. We're known as being a storage company but we don't sell storage, our hosts and our partners sell storage. We, as a marketplace, sell trust, it is our job to make it as safe and as trustworthy a transaction as possible.
How long have you been in business?
We started about seven years ago.
Have you scaled the operations to cater to your partners who are listing their spaces with you?
It's very much scaling the technology. The value of the platform is the value of the tools that we provide. Every year we're trying to think how can we make this more of a passive income experience for our hosts because that is one of our differentiating factors. If you think of other marketplaces, to make money on Uber, there's labor involved, you have to go drive around, or Instacart or DoorDash, and you have to work for the income that you earn. Even Airbnb tends to have a decent amount of management and turnover and customers. Oftentimes, management companies are hired, Neighbor, on the other hand, is the first platform where we can bring you a renter, and you're going to get a payment from that renter every month without doing much of anything, it's very passive income.
Further along in the business, we've gotten the bigger hosts and have started to use the platform to where today. We have hosts that may own a $30 billion real estate portfolio across the country, office or retail or multifamily and they're listing lots of space on our platform in 100 cities. The tools required to manage that amount of space are very different than the tools required to manage a driveway or a garage. And so, building more robust payment systems to work with any large enterprises, custom payment systems, or building tools, almost like SAS-type tools where you can see the layout of hundreds of spaces and assign renters to different spaces, we use this cool tool called a blueprint for large owners of the land. We're able to pull up a satellite view of your space and we will help you lay out the vehicle storage spaces. You can have a spot for RV parking, for both parking and vehicle parking. We have a whole software tool that will just help you lay that out and know what to charge for each space at scale. So, when we think about scaling, it's how you manage more spaces without adding a tax to your day-to-day productivity.
Do you think you're going to be focusing more on businesses versus individuals and property owners?
For the first three or four years of the business, we focused largely on residential. We have residential hosts earning money in every city in the country, all the major cities, but also like cities of 2000 people, will have hosts, they're earning money, because no one even justifies building a storage facility there but we can acquire hosts and they can make money. And that's largely a motion now. Those people earn money, they tell their friends about it.
The focus of the business right now is on the commercial side and that's where we're seeing a lot of scale success. As it turns out, in a lot of these portfolios, if we can earn them 7 figures in the annual answer of income, that makes a big difference, especially because it's pure NOI, it doesn't come with any additional expenses, it just flows right down to the bottom line. If they're a real estate private equity group, that makes their IRR look a lot more attractive. If they're more of a traditional REIT that helps them hit revenue targets and helps their ancillary income teams hit their bonuses. There are some macro trends there as well. The office is the obvious one, where that industry is just in a really weird spot right now where vacancies are very historic highs, and that space is starting to be repurposed. The initial thought I think, for a lot of office providers, was office to residential, but I think most people are finding office buildings don't convert well (the plumbing, the building structure) it's next to impossible. So, they're looking for lower-cost conversion alternatives in industries with strong demand and storage, it's the highest occupancy rate of any real estate asset class. So it makes a great candidate.
While the office has experienced abnormal trends, all the asset classes are experiencing the effect of interest rates like multifamily. If you built a multifamily, even if you're successful and you're all the way leased up, with interest rates and variable term loans coming up, you may be underwater on the otherwise successful property and we can come in and provide that extra ancillary income, all of a sudden when you were looking at a 1% year over year growth here, you're able to achieve 5% and it makes the difference.
Can you share an example of a REIT or a larger investor that has onboarded some properties with Neighbor and how did that go?
In the retail space, we work with a group called Federal Realty, one of the largest owners of retail space in the country both on the East Coast and the West Coast. We onboarded them, we work with them both the suites that struggled to rent then will rent those out for self-storage, and also the parking in a strip mall. There's always that parking in the back that nobody parks on, we've rolled out nationwide with them.
On the multifamily side, an example of one of the many multifamily groups we work with is Equity Residential, one of the largest owners in the country. In some properties, they have 20 different vacant parking stalls while in some properties, they have five, but at every property, they have and it's all income, and those properties get leased up very fast. If I look at properties that are onboarded, they get up to 75-80% occupancy quickly. And then, when you add on the interior self-storage opportunity where equity residential, built storage units in all of their multifamily complexes nationwide for their tenants as a tenant amenity. And it turns out that if you talk to most owners of multifamily in the country, those are generally occupied at about 25 to 30%, occupancy, and storage nationwide has a 90 95% occupancy rate. So, you can bridge that gap. If they onboard the remaining ones on our platform, we can get them to 90-95% occupancy, through the community. It's great for them, it's great for the community, and everyone's happy.
Is there anything else that you think is important for our audience to know?
We talked about some of the trends and historically, I think property owners were very asset class focused, and anything outside of that was viewed as a distraction. I think the property owners that are winning today are those that have a more full property monetization mindset, where they think in terms of, "I own a property, I want to make as much NOI off of that property as I possibly can. I don't care where it comes from, I want to maximize NOI". Especially in high-interest rates and environments, you see some property owners right now who just can't get creative, and they're walking away from some buildings. The ones that hang on to their assets are going to come out five years from now, and are way ahead of every other asset owner because they didn't take a loss during this down period.
We've got to be creative and adapt.
Joseph Woodbury
www.neighbor.com
joseph@neighbor.com
sky@neighbor.com