How is self-storage doing today? What are the benefits of joining a mastermind? Scott Meyers, founder and CEO of Self Storage Investing , shares his knowledge with us.
Tell us a little bit about yourself.
Cash got started in self-storage back in 2005, after being involved in single-family, multifamily, office buildings, and warehouses. We wanted to look at other avenues and similar asset classes in real estate, because we'd love all the benefits of real estate appreciation, depreciation, passive investing, cash flow, and building a retirement, but the tenant toilets side of the business was not a part of the business that we wanted to be involved in any longer. And that's why I began to look around in the landscape and found some storage and there were parking lots of vacant land and storage that didn't have tenants and toilets. And the more we looked into self-storage, the more that we recognized what a great asset class was, and that it was also the best-performing asset class and all the real estate. That was right under our noses the entire time, but we overlooked it because it wasn't sexy, it wasn't attractive. And then, once we began to look into the numbers, we invested in our first facility. We saw the light, sold off all our other assets, and went 100% into self-storage after that.
I was the head of the President of the Central Indiana Real Estate Investors Association. People began to see what we were doing in storage, and getting a lot of attention. We began holding some workshops to teach people how to do it the way we were doing it and that took off. One of the national agents for the real estate speakers nationwide contacted us and wanted to send us out to other real estate investor groups, just like ours, to speak and teach on self-storage and that took off as well. We found ourselves with 260-hour-a-week jobs that we didn't have time for and so through the years morphed into scaling back the hours. But combining the two businesses and doing it in such a way that it drove investors towards our deals so that we can do partnerships, and then, grow that side of the business, where people begin to learn about it, from either outside of our ecosystem, or within the people that were truly growing and scaling their storage businesses like yourself.
The industry's first mastermind many years ago in Las Vegas after one of the ISS shows has grown to be the most vibrant storage mastermind in the industry because it's all like-minded individuals who are helping each other and doing business with each other and getting better and keeping each other accountable. And it's an honor to be able to, I can't even say lead it because I don't lead it, I'm just the moderator and the rock stars that are a part of the mastermind are the ones that lead it. It's been an incredible journey. We love the place where we are right now in terms of my business and our businesses. Storage isn't always the best place to be whether the economy's booming or even as we head into a contraction like we are right now. Storage always does well. Life is good right now.
It's a great time to buy. I think the people who lead masterminds have sometimes a thankless job because people don't tie what they get out of it to the mastermind and it's so important to always go back to where you meet these people. How much money did you make or how much money did you save from getting into trouble because of the information that you learned? Even though masterminds are more expensive, the return on investment is, for me, at least minimum right now, 20x, between equity, partnerships, and things that you learn.
You have been doing self-storage for 20 years, how is self-storage doing today?
We're bullish on storage. It doesn't matter what the economy's doing, because our asset classes are largely unaffected by what's happening when things are good, people buy more stuff and there's a need for storage so we do well. When there's a contraction in the economy and people are losing their jobs or businesses, it is going a little slower. They have to put their inventory in storage, or they sublease their office or whatever their business looks like and we benefit from that, as well. We are heading into a time that we've been preparing for years, which is kind of the intersection of all that. Interest rates are a little higher and the cost of capital is higher but we are seeing a contraction in the market, which is causing people to downsize businesses.
I heard this morning that in Austin, Texas 20% of the workforce is unemployed right now. Some of these companies are laying their people off. But there is a pullback right now, and the jobless rate is a little higher than even what the government statistics would show because we're seeing it and feeling it in the marketplace. We've just come to that place and passed it about 30 days ago, where rates are now going back up again. Where we are in the leasing season for self-storage so you typically see an increase in rates, but we haven't seen as much activity in the housing market just because rates have been higher. And that is generally what drives a lot of our occupancy and a number of our searches that come into our system for our stores. And it comes for about 40% roughly of our traffic or people that are moving and buying new houses, in addition to all the other reasons why people need storage.
When the market has been down for housing, that's affected us but now we're still seeing that place on the intersection of the ability to raise rates on the interest level and storage is going up, there's been a leveling off of interest rate and so people are buying houses now and moving. We have been very pleased with what we're seeing so far in the leasing season. We've been bullish all along in terms of our acquisitions and developments. We haven't had as many new developments start as normal because that is a little more costly with construction costs and the increased cost of capital, the length of time for our interest reserves in our lease up reserves, because of the cost of capital. Some of our deals don't pencil out at today's interest rates. Others that we've been in the middle of have started that work and pencil out and we're moving forward with those on the acquisition side.
We think that Q3 and Q4 are going to be even better when some of the folks who weren't in a mastermind or didn't get themselves educated on storage get into the business a few years ago and now it's time to refinance their properties. They didn't know what to do, they didn't know how to increase the value of their facilities, they didn't mind the store and they didn't look at the numbers. They're in a position where they perhaps can't refinance, they're not in a solid financial position to do so from a performance standpoint. They're being forced to sell and that's what we've been preparing for and we knew that there would come a time again, we've been at this for this third recession and we're heading into the fourth, call it that with the pandemic. We've seen this pattern before and we've been preparing for this and now we are seeing those deals come to the market. We have the capital and we have the lending relationship to take advantage of the situation of what the market is bringing to us.
Do you think self-storage is being overbuilt in places?
You can't say that the industry is overbuilt. If everybody's rates all across the country were going down and everybody was at 50% occupancy, maybe, but I don't think that we would ever get to that standpoint. There are lots of safeguards in our industry and we do know what it takes to do our homework and understand as developers, what makes this successful self-storage development project. With today's very difficult capital markets: appraisers, lenders, and private equity partners, they are not just throwing money at us, assuming it's going to win, they are forcing and they want to see our feasibility studies and the demand studies that we're doing in the marketplace to understand what a deal looks like before they're going to grant us a loan or loan us our limited partners that are going to come alongside of us or the hedge funds and invest with us. We shouldn't be coming forward if we didn't have that, and we really wouldn't get it anyway.
There's kind of a self-policing of the industry if you will, that doesn't allow for overbuilding. Now, it has happened in certain areas and we've seen that where there's a softening of rates, and there's a lot of competition, but usually, it's a function of competition that doesn't coordinate when they're going to build a facility from time to time. You have a couple of players within a five-mile radius and a trade area and maybe three players that are coming online at the same time and they're all trying to buy occupancy so they're lowering the rates. They may affect the market within a five-mile radius for a short amount of time. But beyond that, once they begin to lease up because there is demand for it and a lack of supply, it'll catch up eventually. It doesn't mean that I just ignore them, throw caution to the wind, and say, "Oh, we can never be oversupplied" because that is 100% not true but I think a lot of the fear or the comments that are made out there, the questions that I get that are based out of fear or out of just not knowing the industry are because of just that not a true market issue in terms of oversupply.
Another thing that I've observed nowadays is the fact that people are moving in with family members because of inflation, things are very expensive and they don't have a ton of money, therefore, where are they going to store their apartment that they just left behind? That's another reason why storage is such a beautiful asset class.
When we have a downturn in the economy, individuals move in with each other, they downsize, and they have to have a place to put their stuff until things turn back around for them again. It's the same for businesses, if there's a contraction in their business, they may sublease the space that they're in, they may take some excess inventory or even raw materials and goods and put them into storage until the economy turns back around again, but they usually don't get rid of everything.
Within self-storage, there are many other sub-classes of that so if there were something to potentially happen to the industry, you can always convert to something else.
We're even seeing different uses in terms of our existing facilities, as well as new development. The race for the last mile for the Amazon delivery and anybody else's delivering online to be in the neighborhood, to get to the neighborhoods, to have the warehousing in place in the neighborhoods, to have the goods, the inventory in place in those neighborhoods, to get it turned around quickly, that requires having warehouses out there. And storage is already there, or storage is being built and adding on these 1000, 2000, 3000 square foot spaces within storage facilities that are being utilized and being rented up by the Amazons of the world and many of the other folks that are trying to get their inventory into the neighborhoods. I don't believe that there's a shortage of opportunities and ways that we can utilize this asset class because it is underutilized in my opinion.
What are some things that you have seen happen at your mastermind?
A lot of the things that we've seen are things that we've built in an environment in which all the good things that we see in a mastermind can occur and some of that is true. As we take a step back, we recognize that following the Napoleon Hills model, which is when like-minded people come together and operate at a certain level, good things happen. They share best business practices, they can do business together and so from the beginning, that's the way we designed it. And we see other masterminds out there where they'll just accept anybody into the group, as long as they can write a check. We have an interview process, and it's an exclusive group that we've put into place in the mastermind.
When you put a group of exclusive people that are operating at a high level together, it's not one plus one equals two, it's one plus one equals ten and that's what we see, it's the level of business that is done. Our mastermind is not educational by design, like our storage academies and other education products, the mastermind is truly where educated people get together, they do business and they're operating at a different level.
What we've seen is longevity. We see relationships at a deep level, these people are going through business and life together. We see some of our members that are doing partnerships, they're hiring each other, they're hiring the management companies that are in the group to manage their facilities, and then they're growing together and creating partnerships within that.
We're seeing private equity folks come into the room because they recognize that our mastermind is different and unique and that the people in it are very unique. We've also designed this to be a safe place for people to be able to come, share the challenges that they're seeing in their business, and get good solid feedback from a board of advisors of people that they know, like, and trust because they've been in the room and they've been together for a while, and then have had those experiences because they are operating at a higher level. And you don't get that in a room that has a lot of folks that are new to the business or not in their first facility yet that can't lend anything. From that standpoint, that is really, that's where the magic happens and has happened is, when you get a whole lot of folks that are doing some cool things. When you put them all in the room together they say "The fire burns hotter when the coals are closer together." And we've seen it. I never wouldn't have expected us to get to the place that we are, and we still have more to come. But to see the amount of business and the level that we're at, as the mastermind has a whole, you know, puts us in one of the top. But if you were to add up all of the facilities in the square footage of the members in our group, we're pushing the top 10, if we were all operating as one individual like a REIT or an operator.
If you look at the list of the largest companies that are in self-storage, we'd be close to the top 10 in terms of what is represented there. The experience level that is in the room, and the things that people are doing on all facets from wholesaling, to purchasing, to acquisitions to conversions and we cover the gamut.
You bring in speakers in the industry: bankers, lenders, etc. so that is always very helpful to understand the state of the market. One example was when I was talking about building my first facility, and I asked the group, "Should we put solar there?" And somebody in the group said, "Well, investment firms have a mandate now of a certain percentage for green projects." How is that going to translate into receiving investment or whatever it is that is going to translate into? And the other one recently is, "Oh, we have this other piece of land in contract, should we be near the freeway or it doesn't matter nowadays? I thought it didn't matter but as long as you have good real estate on Google, that's really what matters. Those are just some quick examples that is important to highlight, because these things you cannot put $1 amount to it.
The idea behind this is that this is a place where people can come even though they're growing and scaling, they haven't run across every situation. If you have a challenge or a question in the industry, somebody in the room has got an answer or his experience with that, or we can find that experience outside of the room because of our vast array and our role and our connections that the entire group has.