Episode 176: Beyond the Box: Pro Storage Explained

Joe Downs (00:00):

So you have 700,000 brand new high-end vehicles being delivered to consumers every year. And the question I asked the mastermind for people, and the number is staggering. Of course, no one guessed it. How many spots do you think are being delivered each year? Brand new RV or boat parking spots?

Announcer (00:29):

This is the Self- Storage Podcast where we share the knowledge and skills from the industry’s leading investors, developers, and operators to help you launch and grow your Self storage business. Your host, Scott Meyers, over the past 18 years has acquired, developed, converted and syndicated nearly 5 million square feet of Self- storage nationwide with the help of his incredible team@selfstorageinvesting.com, who has helped thousands of people achieve greatness in Self storage.

Scott Meyers (01:05):

Hello everyone, and welcome back to the Self Storage Podcast. I’m your host of Scott Meyers, and on today’s episode, we have none other than Mr. Joe Downs of the Belrose Storage Group. Joe comes to us, he has been a part of our academy. He has gone through our mentoring programs and is a very active member of our self storage mastermind, winning several times the belt, if you will, the award for the best of presentation. But aside from that is not only just, he is not only an incredible presenter, which is why we have him also speak in a 10 part of our academies and our other live events. But it’s because of the content and what he’s doing from an investment standpoint. The Melrose Group has just come out of the gate super strong, and they’re continuing to set the pace compared to many other companies out there in self storage that have only been doing this for less than a few years.

(01:53):

And so I want to have ’em on the podcast to share with you Storage Nation. Well, not only what Joe is doing and their journey at Belrose, but also they found another niche within storage, even though people think that self storage is a niche in itself and it is in the realm of commercial real estate, but there are niches within the niches, and that is what Joe is focusing on right now. And he gave an incredible presentation in our last mastermind and I just wanted to have him on to continue that conversation and maybe introduce you to another sector of self storage that maybe you haven’t heard about, haven’t thought about, or if you are another way of looking at it. So with that, Joe, welcome to the show.

Joe Downs (02:31):

Thanks, Scott. As always, I’m humbled to be here, humbled to have the opportunity to speak at some of your academies as well. Thank you.

Scott Meyers (02:38):

Well, we’re glad to have you here and to share this conversation because your presentation was the one that I paid most attention to, the most attention to at the Mastermind. And so Joe, if you would, why don’t you share a little bit about your journey in self storage and then we’ll kind of dive into this niche within this niche of self storage that you have found yourself in now.

Joe Downs (02:58):

Yeah, love to. If niche could be a thunder, I would say you just stole mine, so gosh, 15 years ago. 15 or 60 years ago, okay, feels like yesterday, but time flies. My partner Tom dle and I kind of stumbled into buying notes together, distressed second Malians, and we built what we thought was a business out of that and we had a pretty good run, and we still buy them actually. But what we learned through the years was it wasn’t so much a business as it was a hobby, a very nice hobby, which is why we still do it, but we couldn’t control some pretty significant factors that would be the difference between a hobby and a business. And so it was in, I think it was roughly 20 15, 16, 17, that timeframe is when we were learning. We did not have a business, so we had a hobby and we started looking at other avenues, other niches in commercial real estate, in real estate, but commercial real estate.

(04:07):

And we tried our hat at various things. We were harmony lenders, we get into title, we’d flip houses, but none of it felt like a business. Not to say you can’t make businesses out of those things, but none of it to us was a business or we weren’t executing it the right way. And then somehow probably through attending many seminars and real estate meetups and whatever, somehow somebody got my email address and started sending me emails about storage. And you may know this, it started to pique my interest. It was probably one advertisement in particular. I don’t know if it was an email or whatever, but I know what struck me as interesting was because of my background prior to meeting Tom where I had raised a lot of money for 10 31 exchanges and tenant common syndications for multifamily and office. And then as part of that, I was also raising money for hotels and some distress debt deals, et cetera.

(05:11):

And there was an advertisement I saw, or an email or something that said something to the effect of storage is similar but different to multifamily and hotels. And this is what I took from it. Maybe I’m rewriting my own history here. Well, this is what was really turned me onto storage and just started to take notice in these emails was in a hotel you managed by the night, you manage the rates by the night you have a nightly contract. We’re always the consumer, so we don’t know it’s a contract, but the hotel, it’s a contract. And in multifamily we sign as a consumer annual contracts was the landlord an annual contract, but it’s a lease and it’s governed by residential real estate loss and in storage you manage your contract by the month. And I just thought that it was different. It pulled a little bit of the best of both worlds there.

(06:09):

And then as I learned more about storage and that nuance to it, you weren’t a multifamily operator as a landlord and governed by landlord laws, you had all the best of both worlds. So the laws protected you as the storage operator. I’m going to hesitate to use the word landlord, not landlords, but the laws protected you that way. But we were also able to be nimble enough with almost like a hotel nightly rate management, but monthly rate management. And then other things from the emails and from the digging I did were certainly interesting to me. We always say in stores you don’t deal with tenants or tenant toilets and trash, right? Well, we do have tenants and sometimes they leave trash but no toilets. So it just became intriguing to me. And so as you know Scott, I signed up for or paid for one of your work and own courses or I forget exactly what you call ’em, but home study course.

(07:27):

And the more I dug into it, the more fascinated I was with storage. And part of that reason, Scott, is because to me this was, let’s pick a year. Let’s say it’s 2016. To me, storage didn’t exist in 2015. There’s no way it did. And I know that’s ridiculous because I own facilities that were built before that, but it wasn’t something that was top of mind. You didn’t hear in all of my commercial real estate travels and raising tens of millions of dollars and going to conferences for tenant and common syndications. No one was there with storage. It just didn’t exist. It wasn’t an asset class that I’d ever heard of that anyone ever said a word about that anybody ever talked to. So it might as well not have existed to me. And so here I was, I told you where I was in distressed second mortgages, and this was the niches niche of all of distressed debt.

(08:20):

And here I am taking a step back looking at storage. This is commercial real estate, but I’ve never heard of it. And to me that was so intriguing that this was maybe the niche that I, and I love niches, which is why I said you stole my niche thunder. But I love niches. I love being in fragmented markets that people don’t pay attention to and don’t not in the limelight, you don’t read about the Wall Street Journal. That’s what I love. And I in that moment realized, I think after reading your home study course, probably twice I realized, hey, wait a second, there’s something here. This is a niche that is not being paid a lot of attention to. There has to be opportunities. And I learned a lot of things in it, like 70, 75% depending on what you read or maybe even up to 80% of these facilities are owned by mom and pop owners, not public and extra space in Kings Bar, not the big REITs. And again, that just was so appealing to me that this was a high but a low barrier to entry high in terms of I needed coaching and guidance to understand this new language. I needed a mentor. I needed someone to just show me the way in storage, but I could do it.

(09:39):

I wasn’t competing with these huge Wall Street back institutions to buy a storage facility in a secondary or tertiary market from mom and pop seller, right? So do you understand, I hope that makes sense. It had a high but a low barrier interest high in terms of knowledge and guidance, not high reasonable, but a barrier so that not everybody could do it. Everybody thinks they can flip a house, right? They watch flip this house so they can go flip a house for $12,000 barrel. You can’t do that sort. You do need guidance, you need coaching, you need mentor, you need someone to show you the letter, but you don’t have to be back by Wall Street to do it. And that’s what was so appealing to me, and that’s what I took to Tom, my partner. And it didn’t take much convincing. It took me showing him, and obviously you guys came to Philadelphia to present in your selfs storage academy, and I’m so grateful that you did because that was the magic needed to actually go meet you and meet your old team and see this in person over the course of what, three days I think.

(10:53):

And I walked out of there and just like we’re going to set the world on fire. And humbly, I think we’ve, we’ve been doing pretty well once we really put our full faith effort and everything behind it. Once we dropped all the noise around us, we got rid of the title company, the lending company, and we just said, this is the pathway. This is where we’re going to make our own. This is the niche that we can make a bright future in. And it’s been fantastic. We owe you a lot of credit and I’ll take some credit for finding, maybe you saw me out of it, but it’s been a wonderful experience and it’s been fantastic. Just really building this company that just started out buying traditional mom and pop self storage. And as you alluded to, and this has maybe been, I didn’t even foresee having this much fun learning about even the niches within the niche. I thought self-storage was the niche and it is when you compare it to multifamily or office or industrial or retail, but even within self storage, you have niche after niche after niche after niche and things you can even specialize in. And I think we’re not creating a niche that would be a little braggadocious to say that, but we are, I think taking a concept and we are going to make it a commonly understood and commonly seen and taking it to the masses.

(12:38):

And that’s the concept of, I’ve heard it referred to by different names. In fact it was introduced to us as contractor storage. I’ve heard large format storage, I’ve heard big stuff storage, I’ve heard monster storage, I’ve heard tour storage, heard all kinds of things. We are attempting to, with your help coin the term pro storage because we think that’s catch all for what we’re talking about. What is storage? And a high level, it is much taller unit ceilings with taller doors so that you could drive a truck into with ladders on top, equipment on top or an rv. And they’re much wider and deeper. So if your standard bread and butter storage unit that we base our whole industry on is a 10 by 10, which has an eight foot ceiling, right? It’s a metal box. This comes in a few different sizes, but let’s just say somewhere between average is 700, 800 square feet and as maybe a 12 foot door or 14 foot door and maybe the 15 feet wide, that type of thing. So it’s that type of profit.

Scott Meyers (13:48):

So I think we’ve seen, as you mentioned, there are many niches within cell storage. And in the past, if you’re going to focus if you will, in cell storage, many times there’s folks that just develop, they only build from the ground up and sometimes they’re just builders and they may open the doors or they may hand the keys over to somebody else and have them then layer the operations on top of it. There’s some folks that focus only on acquisitions, only buying existing facilities and then others that do all the above or including conversions buying industrial properties and then repurposing them and giving them new life as a self storage facility. And so those are kind of the niches that we’ve seen. And then others, there’s been this, the boat and RV component to it or the contractor storage, just larger spaces. And as you mentioned, buildings with larger doors.

(14:35):

There are folks that need that. And then now we’ve seen, I think in many instances the market is kind of driving not just by way of demand, but working with municipalities. They are less apt and they are, they’re less interested in approving self storage projects unless they have a retail component on the ground floor. If you’re say either building or buying a building to a convert, they don’t want just a storage in their backyard or what we’ve talked about nimbyism forever in our industry or not in my backyard. And so self storage developers and folks in acquisitions and converting these buildings have had to get more creative. And we’ve seen them co-located or doing joint ventures with makerspace. So we see in Laundrymat, I’ve seen brew pubs mean, you name it, self storage is now being commingled with other asset classes just depending upon the municipality.

(15:26):

You found a great building, a great site, but they don’t want just self storage. They want something else that is more community friendly, more neighborhood friendly, or really just the zoning board or the city themselves would like to see something different than just self storage. And so by that nature, we’ve kind of come into some niches in some commingling, if you will, with these other asset classes. But now we’re seeing that truly there is a shift in the industry. We saw that Covid created a huge demand for boats and RVs and therefore then a place to store them. And you couldn’t get a boat or couldn’t get an RV for almost two years it seemed like there was such a backlog because people weren’t going on vacations, but they weren’t using that money to go on vacation just here locally and doing it in a different format and doing it by themselves without anybody else around.

(16:12):

And what better way to do it than on a boat in the middle of the lake with just your family or in an RV with nobody else around. And then we’re seeing now in now what we’re seeing in our economy is a reshoring. We’re seeing due to many of the changes that we’ve seen in terms of tariffs and importing and exporting in this country, we’re seeing a whole lot of manufacturers now coming back to the US and the reshoring that goes along with that. And all the suppliers has created a huge demand for smaller warehouses, not large warehouses, not even medium size, but something that it would really be just maybe two or three times the size of a normal unit that we would build at our cell storage facilities. And that includes last mile delivery for Amazon folks and drop shippers. And so we’re seeing with what the changes in the economy right now, there is a demand for a larger type of storage, and we’re seeing that middle ground between a larger warehouse and self storage that needs to be filled.

(17:11):

And I think you did some math at the Masterminds, which really is just kind of telling and looking at the amount of storage out there roughly, since we’re still, we don’t have really good solid data on the amount of units and or spaces available in boats and RVs. But if you just look at the manufacturing numbers, you kind of came to an aha moment that they got to go somewhere. So it might as well be at a facility that I own or build. So why don’t you share that, the aha moment in how you came to that place?

Joe Downs (17:37):

Yeah. Well, and you hit the nail on the head on a number of points there. The aha moment was really, there’s two things happening and you kind of touched on both. And I’ll just expand on little through our research. So we’ve all seen these distribution facilities, these million square foot distribution facilities, like the largest buildings we’ve ever, unless you’ve been around the Pentagon, there’s the largest buildings any of us have ever seen just drive around. And you’ve seen them pop up everywhere along the highways. And that’s all the goods and services coming in, not good surfaces, sorry, all the goods coming in off cardo ships, right? And then what you’ve also probably noticed there, there’s three and 400,000 square foot facilities. So they come into to the distribution facilities, they get sorted, and then they get routed to the more regional distribution facilities, or sorry, fulfillment facilities, and that’s your Amazons and your new lines, your logistics companies. And if you order something from Amazon, we all have, right?

(18:43):

Typically a year ago it was very common. It took maybe a week, five days a week, 10 days, and you had whatever item. Now, in fact, kid you not, yesterday, my son asked, Hey dad, can I get a Pullup bar for his door jam? And I went back and forth and I’m fine, you can get a Pullup bar. I got home last night, yesterday in the morning he asked for it. I got home last night. He goes, dad, I installed, it’s great. I said, how do you have this already? And he said, well, because I’m the man, I’m him, whatever he said. And I laughed, and it was a rhetorical question. I know how he has already. It’s because of the last mal warehouse, but to me, the last I didn’t even realize we have, that was another aha. You could get a pull-up bar the same day, not toilet paper, lat paper towels, which are things you can get same day.

(19:33):

Now, a pull-up bar, how many Pul bars are we ordering that we have them available same day. So in our neighborhood, so the last mile warehouse for people that don’t know is those are buildings that have existed. You’ve driven by a million times, you didn’t know what they were or there was a contractor in them. And that’s really what was happening. There was a plumber in there, electrician, whatever, or a series of them. And it might’ve been a 10, 20, 30,000 square foot flex warehouse building that used to house a couple businesses. And those businesses have all been pushed out. All these contractors are pushed out, or just businesses that kept inventory. They have all been pushed out. Why? Because of the demand that we’re creating as consumers, because we want things, we want ’em now. And the logistics companies have realized that. And what that’s done is it’s taken the, A contractor typically needs 500 to 1500 square feet, let’s say average a thousand, right?

(20:32):

It’s hard in those buildings to find a thousand or 1500 square feet, square foot demised spaces in a 30,000 square foot building. Typically they’re 5,000 CHUs. So maybe the contractor was renting 5,000 or sharing it from 2,500, whatever those rental rates on an annualized basis, depending on your market, were anywhere from let’s say $7 to $10 a foot. That same space is now 14 to $20 a foot because of the demand that we are creating as consumers. And that demand’s not going down, it’s going up. It’s pushing out contractors who by the way, didn’t even need that much space. So not only do they have twice as much space, it’s costing twice as much. They’re getting pushed out and they have nowhere to go. And a lot of them traditionally were in regular storage, just consumer retail, 10 by 10 or maybe 10 by twenties, but year eight foot ceilings.

(21:21):

And they had over the years migrated as their business group to these small flex warehouse spaces just taking on more than they needed. Well, now they’re getting pushed back out. And so we own a facility in Wilmington, North Carolina that it was 80% contractors. The unit sizes are exactly what I described, 80% contractors, 20% boat RVs, and some guys with some anti cards or something, toy storage. And that facility, since we’ve owned it, hasn’t been, you’ve come up on a year, we’ve been able to raise the rates on that 50% street rate from when we bought it. And we’re filling it up and there’s never vacancy. And the tenant we have in there is storing tens of thousands of dollars, if not hundreds of thousands of dollars worth of inventory materials or vehicles and boats and RVs, and there’s zero delinquency. It’s the easiest facility we have to manage.

(22:15):

And that was the aha moment was, oh my goodness, there’s contractors are getting pushed out. This is why we are able to do what were able to do here. This problem isn’t going away. It’s not unique to Wilmington, North Carolina. This problem is everywhere. Scott, in the background of all that I told you, I love niches. We had also already been looking at boat rv and I’ve been out to the trade shows and I fell in love with boat and RV and Class A facilities, and I’ve visited them and the numbers are mind boggling. Not that we were developers, we weren’t yet. But fortunately, we are members of your mastermind. There are partners in your mastermind. That’s one of the neat things about this industry and the mastermind being a part of it is we’ve got all the resources we need, we just said to go find the niche.

(23:08):

And so we found the niche and we weren’t the only ones of course, and we partnered up with another mastermind member and we said, Hey, let’s go build these things. This can be incredible for all of us. We’re kind, we think we’re smarter than everybody. We had not an aha moment, I guess, but more of a you moron moment. So we thought for a minute, a hot minute, we were smarter than everybody and we were going to go out and build these everywhere, these class A RV facilities. Why? Because, and this is where you alluded to the math. The math is staggering. There are on average, if you just look at the last 10 years, and this trend’s expected to continue on 400,000 brand new RVs delivered to consumers every year in 2022, which was the height of, Hey, in 2021, COVID Pandemic, we’re going to order one.

(23:55):

And you alluded to that. Well, a lot were ordered and they were delivered in 22. So 22 was a spike year. It was like 660 or 30,000, whatever RVs delivered. And then it dropped off in 23 down to three something. But it stays in line with the average of 400,000. And then I think boats are roughly 300,000 a year. So you have 700,000 brand new high-end vehicles being delivered to consumers every year. And the question I ask the mastermind for people, and the number is staggering, of course, no one guessed it. How many spots do you think are being delivered each year? Brand new RV or boat parking spots are delivered each year, and the number is just mind boggling, 20 to 25,000 a year. And the reason for that you already alluded to, which is nimby, not in my backyard. So in our moments of brilliance, which were fleeting, where we thought, Hey, we’ll go find land, we’ll identify a good location, we did.

(24:55):

We found the land, we got the great locations, and then we proceeded to strike out with three municipalities who laughed at us and said, not in my backyard. You’re not doing that here. And couldn’t give us a real reason. And I don’t know if it’s a tax base issue or they think that we’re just going to park the Uncle Eddie looking RV from Christmas vacation if that’s what they think we’re parking. I don’t know. I mean, we planned on parking two and three and 400,000 RVs there in a beautiful facility. But municipalities just say, no, they won’t even give you a reason. So in the back of my head, and maybe this is the aha moment that I finally had, it took a hot minute, but was we’ve got this mounting demand for contractors storage. And whether we like it or not, or whether people realize or not, there’s a growing demand for RV and boat storage, but municipalities don’t want to let anybody build, but they don’t give you as hard a time to build storage facilities yet.

(26:00):

You still have to go through the approval process and maybe they sell, but in general they say yes, right? If it’s sewn for it. And so the aha moment was, well, in Wilmington, we do both. Why don’t we just go build both? Why don’t we just take this concept, this Wilmington based model concept and take that to the municipalities and say, Hey, will you approve this? And in and on, of course. But that is the pro storage concept. And we didn’t want to call it contractor storage and large format storage just sounds weird. That’s why we’re calling it pro storage, is to take this concept, these two demands that are being unfulfilled right now from various market forces and ridiculous municipality reasons and saying, Hey, let’s marry them together to one facility. Let’s go build them. And that’s the niche that again, we’re not creating.

(26:51):

Wilmington existed. We found probably 30 or 40 of them around the country that already exist in some way, shape or form, similar sizes, et cetera. But there’s no Home Depot brand of them. There’s no public storage or extra space, this type of concept. And that’s where we’re out to build. It’s got lasting in that point. And you sort of alluded to it with the pandemic inspired, I guess you alluded to it when you said things we can do outdoors, whether that’s boating or camping, et cetera. It really reintroduced all of us to the outdoors life, the outdoorsy life. I know this by the way. We have a house in the Poconos, which is an outdoorsy, Poconos, Pennsylvania. It’s mountain, it’s ski in the winter, it’s lakes in the summer. And the pandemic uncovered that for and reintroduced everyone in Pennsylvania, New York, New York, and New Jersey into that life again.

(27:48):

So it was totally reinforced by that. But with the onshoring and all the manufacturing coming back, there’s a geopolitical strategist, Peter Zine, who I’ve read his books and I’ve seen him do a piece on this. He said, from a vacationing standpoint, the largest group with the most money are baby boomers. And then the next largest group with some money are millennials. The largest growing socioeconomic group that’s starting now, and it’s going to continue to grow for the next 10 years are the contractor traits that are involved in manufacturing. And that since all that’s coming back, they’re going to have the most money. And how do they vacation outdoors? So you have the demand. I think that demand’s going to continue to grow. It’s not going to stop as our economy, our economy. It is what it is right now. We opine on it, but it’s still the strongest in the world. Our population continues to grow. I don’t want to get political, but we’ve got plenty of new residents in this country and they will continue to increase our growth rate. So housing will continue to be a shortage. And as housing, as a short buy, we build more housing, we’ll leave more storage, but we’re also need more contractors. Certainly when I say that, I mean trades. So you have two problems, two demands continuing to grow. And that’s what we think storage solves.

Scott Meyers (29:23):

So I’ve looked at this on and off and we have boat and RV storage at our facilities. And in the past it’s like, okay, well if it isn’t already graveled when we buy it, we’ll gravel the extra acre and park boats and RVs on it until we fill up the buildings, then we’ll build more buildings because we can always more rent on a roof with the buildings than we can just in open space. The numbers just make sense. Even if we pay for the building, it generates more revenue. The ROI is greater. But now we’re at that place where, and I’ve seen some folks that have done just contractor storage facilities, and like you said, they’re on the outskirts. They have to go out outside of the municipality sometimes just in the county where it’s a little easier to get approvals. They’re also looking for 10 to 12 acres so that you have enough room to put just whether it’s motor, RV or contractor storage with the big trucks and trailers and just turning radiuses.

(30:17):

You have to have more room just to generate the revenue. And so in order to do that, you have to go a little further out as long as you’re close to a highway. And so we’ve kind of danced around this and certainly not done the deep dive that you have. And we also know, and I’ll just add a little more context to the question here, but we don’t have a lot of data. We can’t do a feasibility study. I guess we can, but our consultants don’t have a whole lot of historical data on what is going to be a good pro storage yard. How big is that? What is the demand? And if you’re going further out from the city, how do you gauge that demand? So if you would tell us a little bit about maybe the process, but then what is an ideal site look like and what are you looking to do in terms of the amount of acres, how many buildings do you have versus outdoor storage? And is there such a thing as a cookie cutter model that you want to drop into every city, or is it going to be city dependent based upon location and based upon the location, the geography, and the demand? So speak a little bit about the process that you go through and what you’re looking for,

Joe Downs (31:25):

And you nailed it. It’s not like traditional storage where we have pick a zip code, pick an address, and we can tell you the supply index and whether or not it’ll be successful or not There. This is somewhat new territory. So we’ve been rolling up our sleeves and really digging in. So what we’ve done is to try to recreate the conditions, the environment, the demographic environment, not recreate, but study and learn the demographic environment where we have facilities that we’ve identified that are successful. So certainly we started with our own in Wellington and West Carolina and we said, why is this successful? What can we learn about this? What’s the median income? What’s the population density look like? How many contractors are we? Near my head? I said, well, they must be near Home Depots and a contractor would want to be near where they get by their supplies.

(32:22):

And that’s on the contractor side. And certainly growing areas, we looked at all kinds of statistical factors that in Wilmington. And then we’ve identified, like I told you, we’ve found 30 or 40 of these that are very similar if not identical to what we have in Wilmington. And we found a lot of the similar socio and demographic factors were very, very similar for the contractors. And the one in particular that stood out was, and I was wrong, it’s not owned depots and I don’t mind sharing this. It’s supply houses. They’re all near supply houses. They’re all within a few miles, which actually speaks to, we think, speaks to the quality of the contractor, the type of contractor, in other words, probably not a fly by night, could be working out of his house or is working out of his house type of contractor who’s running, who Pricess Misjudges doesn’t know what they’re doing, really a job and is constantly running back and forth to Home Depot.

(33:23):

This is a contractor who’s running a business and knows how to price a job and order inventory. They clearly, well, first of all, our facility, Wilmington, it was called Mt. Maxey, now it’s called Next Door Storage, was built by plumber. So it’s built out of his own demand, but he was centrally located to supply houses. And most of the ones we found that seem to be very successful around the country are all near supply houses. Maybe the supply house is open near them, who knows? But that’s on the contractor side. There’s any number of factors. But that one stood out to us, not only depot, it’s supply house. And then on the boat and RV side, there’s a gentleman in the industry, I won’t name names because it’ll sound like I’m disparaging and I don’t mean to at all because super successful. And I asked him for boat and rv. He said, what’s my supply index? How do I know this is going to work here? And he looked at me and he said, Joe, if you build it, they will come. I said, well, I believe you. I do. I believe you. I can’t tell a lender and investor that, but I believe you got to give me something else. He said, if you build it, they will come. I said, all right, we’ll figure it out on their own then.

Scott Meyers (34:50):

And this comes from a consultant who as consultants, they say the worst thing that any developer could say in storage when they enter is to, if they build it, they will come. And that is their business plan and their model and that you need to have a feasibility study. And that was his plan and model. So it just goes to show that the demand is there.

Joe Downs (35:11):

There’s an element of comfort in that this guy’s built many of them and be very successful. You see every one. So there’s an element of comfort in that, but I don’t come from a position of, Hey, let me just stroke a 10 million check, build this thing and then prove it. So we had to roll up our sleeves and figure it ourselves. So we did the same thing, same process. We said, all right, the existing, by the way, in the, when we kind of gave up on building them, we didn’t give up, but when our egos were deflated enough, we said, well, can can’t beat ’em, join them. So we started to call them to see if we could buy ’em, all the existing ones, all the competitors around the site that we were going to build. And they hung up, the phone left, and these things are cash cows, which it was another confidence booster in that nobody wants to sell them because they make so much money.

(36:04):

And we have bought one since, and we have 200 contract because they were actually listed for sales. So somebody had made the determination that they were retiring or whatever, and then to sell. So we jump on them when we can find it. But what we did was we went said, all right, same process. Why are they where they are and why are they successful? So we’ve just tried to re-engineer, how did somebody decide to build? And some of ’em are mind boggling why they would’ve, the site selection doesn’t match all the others, but yet they’re successful. And I think that speaks to the demand. There’s so much demand out there. And then I’ve had some people tell me recently said, yeah, I live in Pennsylvania. Said, pretend you just bought an rv, pick up the phone and go try to find a spot can’t. So again, we just try to re-engineer the same process.

(36:58):

And a lot of ’em are, look, they’re near vacation spots or they’re near lakes or mountains or a lot of that. You can kind of, yes, going in that helps you be successful, but you can’t even completely rely on demographics. These RV owners will travel to find a spot. They’ll travel 30 miles, 50 miles because that’s the only spot they can find. And the other piece of this puzzle that is affecting demand is going to continue to affect demand is HO eight contractors and RVs, what 85% I think I read of HOAs, do not allow you to have a business or rv HOA and something like 90% of all new developments are HOAs. So it just continues to put pressure on the demand for these spaces.

Scott Meyers (37:49):

So what is the biggest challenge? I mean, outside of getting data, it still seems like you said you’ve had some confidence going into this niche, within the niche. What has been the biggest challenge that you found so far? Is it just finding a site? Is it the municipalities, is all the above?

Joe Downs (38:06):

No, we’re finding sites that will work faster than we can to get our ducks organized to move forward. And by that, I mean look, this is a new development and it’s a new concept. It’s rooted in success. It’s rooted. We have proof of success in certain areas, but it’s still a new concept. So for us, our challenge, my current ceiling of complexity is not, should we do this, it’s not will we be successful? How do we go out and raise? Where we are right now is probably trying to raise a pre-development fund because each site is going to require roughly $300,000 of pre-development. And some of that’s at risk, not all of it, but some of it’s at risk. So for us right now, it’s the challenge of convincing investors that, hey, this is worth taking the risk on a development site with us. And then we’re rewarding them enough such that they feel that way.

(39:04):

And that’s where I think the fund comes in is we want to set out to build 10 of these things. We have 200 contract right now, third and fourth we’re looking at. But I feel like if we could put together a fund, we can diversify the risk of the pre-development risk. I think once we’re past the pre-development phase, now we’re just going vertical. And most of that risk is off the table. I don’t see the risk in the concepts. I don’t see the risk in, and actually we’re doing some things from a marketing standpoint to take some of that risk off the table, pre-leasing units and stuff like

Scott Meyers (39:40):

That. Yeah, well, and when you have a waiting list in a market, you can certainly do that. We’ve seen that happen in other asset classes. And now that also helps on the development side and the acquisition side, because lenders for something that isn’t already producing cash, they begin to ask, we’ve seen this in the industrial sector. They say, well, tell us about the pre-lease and what does that look like? And I kind of looked at ’em. I thought, well, I’ve never leased anything until I had something available. Only defined in that world several years ago when I began to dip my toe into it, I realized that that’s a thing. And so the good news for you is that, yeah, there’s a huge waiting list. So people will be happy to stand in line, hand you a check, to reserve a spot when it’s available so that they don’t have to drive as far as they do right now. So

Joe Downs (40:26):

That’s exactly right. One of unique, if I may, one of the unique differences from developing this versus even traditional storage is you’re not pre-leasing traditional storage units. Your customer is on demand. They’re not planning to have, or the planning to have sum, but typically not planning to have the need. So one of the unique things in the model is we do expect to lease it up faster too. So there’s some risk that’s taken off the table, but it’s because it’s the new concept. And by the way, we’re very aware of the fact that some people have tried to encourage me, say, pioneers are the ones that made all the money. And I say, yeah, well the ones that survived. So it’s being a pioneer, but surviving, being a pioneer is one of the

Scott Meyers (41:18):

Yeah, well the stats are definitely clear. 80% of all businesses fail within the first five years. And then I think 80% of those fail shortly after that, again, are some other numbers. So it truly is an up road battle for those that are looking at the launch of business. But the good news is in the storage industry, as we’ve seen, if you run it and you treat it like a business instead of a hobby, as you mentioned earlier, Joe, that this industry is, it’s not limitless, but there’s always a demand and there’s always a need. And as we continue to stay on top of the niches within this niche, I think there’s always going to be a home for those of us that are wanting to grow along with this industry. So Joe, we are at the time that we have to wrap up and definitely want to, well, I have access to you by way of the mastermind and because you are so involved in our academies. And so what I would like to do with your permission is we’ll bring you back and we’ll talk more about operations and as the business model begins to evolve, I’m sure there’s people that want to know a little bit more about what you’re doing and maybe look into a pivot as well. But in the meantime, but before we end, how do people get in touch with you?

Joe Downs (42:24):

So I can be reached at joe@bellroseam.com. That’s B-E-L-R-O-S-E-A as in asset, M as in management.com.

Scott Meyers (42:35):

And Joe also for Storage Nation. I know that you are a avid reader and a voracious reader as a matter of fact. And I know you like to gift books because I’ve it on the receiving end of that, greatness is a one of those that I cherish. What are you reading right now or what is a good book that you feel that would help folks, whether it’s in our industry or just in business in general right now that is at the top of the list? What is at the top of your reading list right now?

Joe Downs (43:01):

Well, depending on what you’re looking to do, I just finished in Love’s at your suggestion, amp It Up,

(43:10):

And that could not have been more perfect for where we are in our growth. But I would also suggest that there’s a book called AI as your teammate, and I’m in the middle, I’m towards the end of it right now. And I got to tell you, it’s by Evan Ryan. And this is not a technical book, this is a, I don’t mean to, I hope if he should somehow listen to this. He doesn’t take offense to this, but it’s kind of written at a fifth grade level for me to understand, thank God. But it really explains to you how you can and should be using AI in just simple parts of your business and how we probably already are, we’re using it in our everyday life and we don’t even realize it, meaning we’re on the consumer end of it a lot and we don’t even realize it. And I’m not talking about replacing people’s jobs, it’s really talking about how we make ourselves and our team more productive just by automations and stuff. So this has been a fantastic book and I think very appropriate right now. But Amping Up was a great

Scott Meyers (44:19):

Suggestion. Yeah, well on my second time through it, and there’s other chapters I go back and have read several times as well, along with our staff to make sure that they’re all amping it up because speed is the name of the game right now. Well, there you have in Storage Nation, you heard it here first. We were introducing the niche within, so Storage, it’s going to be called Pro Storage. And so we know that that’s going to take off not only on your end, within your own business as well, but just kind of looking forward to watching that, the growth trajectory that you have and just kind of sharing and learning alongside of you and thankful to just be a part of that. So with that, Joe, I appreciate your time and looking forward to being in the same room with you again very soon,

Joe Downs (44:59):

Scott. Looking forward to it as well. Again, always humbled and thankful that we found you or you found us. I’m not sure which it is. We’ll figure that out one day. But great to be a part of your organization.

Scott Meyers (45:11):

Thank you. Beautiful. All right, take care gang. We’ll see you all on the next one.

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