Episode 139: The Rise of Spartan Construction Management – Aaron Saunders

Aaron Saunders (00:00):

That side of the organization is doing extremely well. We have a pretty robust pipeline and we’re excited about those projects.

Self Storage (00:17):

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 at selfstorageinvesting.com, who has helped thousands of people achieve greatness in self storage.

Scott Meyers (00:50):

Hello everyone, and welcome back to the Self Storage Podcast. I’m your hostess, Scott Meyers. And today’s guest is none other than Mr. Aaron Saunders with Spartan Construction. Now, Aaron and I have known each other for a number of years on the construction side and in the business sense, but Aaron and his family has also gone on several home builds with us as we go down to Ensenada, Mexico and build houses with our partners at used with the mission or YWAM in Homes of Hope and give them away. And so we are thankful for his house building skills as well as his construction skills on the storage side, but I thought it was high time that we have Aaron on the call to talk about what’s going on in development from the construction side. We talk about it from the investment side, but to give us a sense of not only where has he been, what has he seen in the construction industry, how it’s evolved, but really how it’s evolving right now as we hit into the balance of this year and beyond. So with that Storage Nation, I would like to introduce you to Aaron Saunders. Aaron, welcome to the show.

Aaron Saunders (01:47):

Thank you Scott. Grateful to be here. Appreciate you having me on.

Scott Meyers (01:51):

Yeah, well good to see you again, my friend. I’m sorry it’s not in Mexico or in Oklahoma or anywhere else where we’re building, but glad to have you here to catch up with everyone. So Aaron, if you would, why don’t you share with our folks a little bit about how you got into this construction side of the business. It is an interesting story that I wanted folks to hear.

Aaron Saunders (02:09):

Yeah, absolutely. It’s kind of a long story goes back to really when I was a child, my dad was heavy into construction and we were building this really big two story shed in our backyard and being a part of that as a child hand digging the excavation and then framing the foundation and getting to build this big shed and kind of stepping back from that as a child and looking at that and saying, wow, I was part of the family that built that shed. And just seeing what you’re capable of, what you’re capable of building with your two hands and working with obviously family at that point. But on a lot of the construction projects we work on today is with team members and our superintendents out in the field and owners and investors. But that was kind of the first thing that really planted the seed for me for construction.

(02:58):

As I got out of high school, I didn’t really know exactly what I wanted to do yet. I had picked up a job at a fab shop and I was working in a fab shop doing structural fabrication, and I was going to the local community college until I kind of got pulled aside by my foreman one day, and he was probably the grouchiest old person I’ve ever met in my life. But he pulled me aside and he said, if you don’t get out of this shop, I’m going to fire you because you don’t want to end up like me being a shop foreman running this shop. And really nothing against him, but he saw something in me that at that point in my life I couldn’t see yet. So I really took that to art and Tony was kind of a pivotal point in changing the direction of my life.

(03:41):

I decided to go to Colorado State University for construction management. I did a couple of internships there, and at that point I really started to fall in love with heavy industrial construction, really large, big projects where we were building manufacturing plants and power plants, ethanol plants. So when I graduated, I joined on with a heavy industrial contractor and started down that path, but parallel to that, I started buying single family houses and renting those out. So while 2006 was not the best time to be buying single family houses in the markets that we were buying in, they were pretty stable. And I started running these two paths of real estate and construction, two of my two loves of my life. I continued down the heavy industrial path for quite a few years, switched to organizations, moved from Arizona back to Colorado where I grew up with the previous company that I was with and worked my way up to running my own divisions and becoming a director of operations for that company.

(04:45):

I became an owner of the company and that was my first taste of ownership in a company and in a business. And while still kind of moving along my real estate portfolio on the side, managing the rental properties and then starting to get into limited partnerships and investing on the limited partnership side, we decided to sell that company back in 2018. And I quickly went from an owner of an organization back to just a W two employee. And for me that was a pretty tough pill to swallow as we had run a very successful construction company at that point. And the 10 of us deciding to sell the company, me being the minority shareholder and not having a big voting percentage of that decision, I was kind of left with the short end of the stick and realized I really like ownership and that’s kind of what I wanted to pursue.

(05:39):

So that kind of led me to Spartan Investment Group indirectly. I had met the leadership team years before at a real estate conference and my parents had invested with ’em. I had known the owner, Scott, one of the owners, Scott Lewis, we got mountain biking quite a few times together. Another thing that I love to do, but Scott and I started talking about, Hey, what if we started this construction company and we had you come in and run it? And for me it was like out of left field like, alright, hold on a second. Now I get to be a part of a real estate development company, real estate investment shop and build a construction company from the ground up. And for me, I’m starting to think, okay, I can take all the lessons learned from these really large construction companies that I worked for, $2 billion organization, which was my first company in the mid hundred fifties for my second company that I was a part owner of.

(06:39):

And now I get to take all those best practices and start from scratch, build this company from the ground up. Spartan investment group’s going to bring my backlog. I don’t have to go win work and I can start to build the team around me to build this company from the ground up. And Spartan’s big driver, there was in the past, they had hired really good contractors and they’d also hired contractors that really failed to meet their expectations, live up to the values of the organization as well as the values and expectations of our investor pool. So Scott and the rest of the leadership team really wanted to build something that exceeded the expectations of our investors of Spartan Investment Group. And that was kind of the framework for me to build this new company, Spartan Construction Management. So yeah, I joined the team, it was January of 2021.

(07:32):

It took me a little while to really get on board because I think a lot of us can get comfortable receiving that paycheck on a current basis and not having ownership in a company makes you feel comfortable, but there’s something there that I was missing. And as soon as I made the decision to join the team, it just flipped the switch. And since then we’ve grown the team. I think we have 12 people on the team now between director of operations, pre-construction manager, project engineers, project managers, field engineers, superintendents, and yeah, we’re just continuing to grow the organization. Last summer, which was July of 2022, we decided, hey, we’ve built this construction company. We’ve purchased some of the best project management software in the industry. We’ve built a really solid foundation for this company to manage all of Spartan’s projects. What if we decided to launch this outside of Spartan?

(08:30):

I think there’s a need in the industry that was missing for self storage in general and some of these projects that we’re typically doing, and there’s a gap in what was being delivered to other developers, to other investment groups, to our investors. And for us being part of Spartan Investment group, we had learned, we know what our investors are looking for. We know what our investor relations team is expecting from us for monthly reporting. We know what our ownership group is looking for as far as managing schedules, managing budgets, managing material and purchasing and managing the team. And really what that expectation is on that backend for that deliverable to our in-house operations company so that when we turn the keys over, they have something that’s turnkey and ready to go. And so yeah, we decided last year, a little over a year ago to launch those services outside of Spartan and we’ve been building for others since then. And we’re really excited about the future opportunity as we move into 24, 25 and 26, we’re going to be doing a three, three-year strategic plan and really setting the direction of the company over the next little over a quarter here.

Scott Meyers (09:38):

Well Aaron, you touched on a few things that are real close to me. And first of all is that I was not made out to be an employee. I realized that pretty quickly when I got out of college and started working for somebody else in technology sector, that being in a cubicle or even in sales and having the freedom and flexibility, but I have to sit in a Monday morning sales meeting was not where I wanted to be. And so that with, I’m not a builder buy in the sense that you are, but it’s just to be able to build something. I think there’s probably a little bit of an entrepreneur in all of us. I mean, many people are made and wired to be part of a team. It’s in their d n a and then others of us. I think all of us at some point either want to at least know what we’re made of and want to go out on our own.

(10:27):

And so for you to be able to then come full circle and have the best of both worlds, that’s been just a huge opportunity and watching you in that role within our mastermind and having the conversations with Scott and Ryan and the team, it makes sense. And for other syndicators out there, I mean we realize, and you just stated it in the beginning, as you’re growing and scaling, we have to use third party for property management in the beginning. And then for a construction, obviously we just can’t bring a team in. We’re just not going that fast. We’re just not running and gunning enough and have a backlog to do that. And so we fool ourselves in thinking that this is the best way for us. But it is really the only way because the best way is once you get large enough, and when you are a company that is bringing on equity partners, the only way to do it is to be vertically integrated.

(11:19):

That means to have your own construction company where you control the expenses instead of being counter to what a normal construction company is looking to do, which is maximize their returns. Whereas when it’s in-house, you’re looking to maximize the returns. You’re looking to maximize the returns of the investors in these projects. Same with property managements, property management companies. We’d love our third party property management companies, but their goal is to get fees, and ours is to reduce expenses and reduce fees for our investors. So once you get to that place when everything is in-house, it just works just so much better and to have that communication. And that’s, I guess the last piece that I wanted to touch on is we’ve been nothing but pleased with working with Spartan Construction and the amount of communication you have with us internally from a project management standpoint and the meetings that we have that are very pointed in direct, which is absolutely everything that we want, and the fact that you schedule ’em is rare, but then also that information that we can directly take over to our investors and the investor relations department to then send that out by way of communications and our newsletters to our investors is just key.

(12:25):

And then that only comes from a company who is focused on that to begin with. So those are the pieces, some of the pieces that I wanted to touch on. And as you’ve built this out, with that in mind, the investor in mind, tell me a little bit about how you’ve separated yourselves from the others out there, other developers if you will, from that investor standpoint. I mean, communications is certainly one of ’em that we’ve experienced and in reporting, but how do you think that you also differ in your approach to construction and working for other syndicators on the third party standpoint based upon the experience that you have as being part of an organization that is a group of syndicators?

Aaron Saunders (13:00):

Yeah, yeah, definitely a couple of really good points in there. But really just specifically to answer your question, we’re a learning organization and we really focus on learning. So we do it in a couple of different ways throughout our projects. And the first way that we do it is by doing a pre-mortem on our projects. So we’ll sit in a conference room and we’ll have all the stakeholders of the project list out all the major risks. And really what we’re trying to identify is why could this project fail? So we’ll put those over on the right hand side of the spreadsheet, we’ll list out all the reasons why a project could fail, and then we slowly work our way back, so the project failed because of X, and then we kind of work our way back to what led to that issue. And then we work our way back, one more step to what initiated that and then how can we prevent it?

(13:51):

And then the next step and the last step is who’s responsible and accountable for that specific item? So if we say, alright, the project failed because we failed to buy out our H V A C equipment early enough, okay, we failed to buy it out because we didn’t get the spec early enough from our engineer. We didn’t get the spec early enough from our engineer because they weren’t given the proposal to proceed with that m e P design and now who’s responsible for that activity early on. So we work with the whole team to break those items down into the risks and who’s the accountable party to prevent that risk. And we do that at the beginning of a project. So that’s our first one is identifying all those risks, but also opportunities. Hey, we feel that there’s an opportunity to expedite the schedule on this project and we can expedite the schedule by overlapping some of these crews or this facility that we’re building has eight buildings.

(14:47):

Let’s get our foundations going for the first three buildings or buildings. Then we’re going to have our erectors come in behind them and start erecting those buildings while we’re working on our remaining foundations and overlapping some of those crews on site so we can really condense that schedule and get those units rentable as soon as possible. So who’s accountable for managing that schedule and who’s that party that’s going to take advantage of that and really focus on that opportunity as well? And not just mitigating risk, but taking advantage of opportunities. And then throughout the project, we as a team, the whole construction team meets every morning for 15 to 30 minutes and it’s our daily sync. We talk about what’s coming up on our projects and what every individual in the team is working on that day and also what they need help on. And each one of our superintendents, it’s an opportunity for them to bring up challenges on their project and share with the other superintendents.

(15:43):

And if that project or that conversation needs to go offline, then they can take that offline and then recirculate that lessons learned or that opportunity and how we took advantage of that opportunity to really make sure that we maximize that project and then all that information is shared with our superintendents and the rest of the team, including our pre-construction teams. We can now incorporate that lesson learned in our next project that we’re bidding and take into the field. And then at the end of the project, we do a postmortem, and that’s where we sit down and we say, all right, these were all the things at the beginning of the project that we identified as potential risks. These are all the things that actually happened on the project opportunities that we were able to take advantage of challenges that we were able to overcome or that we had to work through as a team with maybe it’s our design team or our owner or just in-house on the construction team.

(16:37):

And we take all those lessons learned and then we just rinse and repeat that cycle as we roll right into the next project. And I think by having that process of a continuously learning and continuously improving organization has allowed us to move incredibly fast. Between that and a few of the team members, the majority of the team members came from fairly large organizations building highly complex construction projects and incorporating all of those other processes and tools like you talked about, the communication, the daily reports, the weekly OACs, our monthly invoicing and making sure everything is matching up, whether it’s the per percent complete on the invoice, is matching what’s being said in the OACs and the progress that’s being reported in our daily reports. And just making sure all those things are consistent. I think that’s what’s really setting us apart from some of our competitors in the industry

Scott Meyers (17:31):

It has. And we’ve experienced that, Aaron, and there’s a point that I wanted to maybe have you school me on or perhaps some others. And speaking of learning, same thing over here. I just want to make our business basically the best that it can possibly be. And that says all areas I don’t expect from my staff and our results, but I do expect excellence and that’s what we exude. And so with that constant striving for excellence and an improvement, I think personally and my staff, if they’re listening to this, I would certainly agree, I follow prey to not offering the praise first and job well done, great job better than last time because we learned this and that, but always looking for ways to improve. And it doesn’t come from a place of that I’m not grateful for my staff and the job that we’ve done, but it’s always just like, how do we get better?

(18:24):

Have we got the maximum out of this business? And if we enter another project like this, how can we get better at that and how can we do things a little bit differently from what we’ve done right now? So my question to you is how do you deliver that message to your staff so that it doesn’t come across as if, my gosh, we just did the best that we’ve ever done and we got on time and under budget and we did some fantastic things, but Aaron’s still not satisfied because all he wants to talk about is anything and how do we get better? How do you approach that as the leader of your organization?

Aaron Saunders (18:58):

Yeah, I mean, just like you said, it’s continuously reinforcing what we’ve achieved and what we’ve accomplished so far as a team. And one thing that Spartan in general does on Spartan investment side as well as Spartan Construction Management, is we focus on the small wins and we try to address those small wins throughout day-to-day life of talking about, Hey, we just achieved C of O on this one facility, or we just got this inspection passed and sharing those small wins so that the team is being reinforced on all the things that they’re accomplishing, all the great things that they’re accomplishing on a day-to-day project, whether that’s in the entitlement side, the pre-construction side or actual construction, even on the project control side that the team in the office here is working on and developing and automating our monthly reports so that we’re more efficient with our decision making and more efficient with our time as well.

(19:53):

And I think that’s a big part of it is just that constant reinforcement with the team and letting ’em know, look at what we’ve built, taking a step back, looking in the mirror, looking to what we’ve accomplished over the last six months, two and a half years, whatever it is, and saying, look, we started this thing from nothing, and here we are today. It’s pretty exciting to take a step back and look at that, but you do have to continuously improve, right? You can’t be satisfied with what you’ve accomplished or you’re just going to fall in line with everybody else. And I think there’s a lot of contractors out there that have a bad name because they have that mentality of, well, this is the way we’ve always done it and it’s been good enough till now. Well, if every other industry is progressing at the speed that they are, construction needs to be progressing at that speed as well.

(20:46):

And that’s constantly looking in the mirror and saying, what are we doing? Why are we doing it this way? I ask everybody on the team to challenge me, to challenge every process, every tool that we’re using, everything that we’re doing and saying, is this the right answer? Should I be spending my time doing this? Is this the best use of my time? Or can I be driving more value another way? Or is there a new tool, a new platform, a new technology, a new business process that can make us continue to stay on the leading edge?

Scott Meyers (21:17):

That’s good. And you’re right, the small wins, they may not be huge because that’s why they’re called small wins, but celebrating each and every one of those that works for staff and it works for our kids as well. And I forget that at times, even though mine are grown now, but to celebrate those wins, it goes a long ways for self-confidence and awareness and just, well, it just makes their day. So let’s talk. Let’s pivot a little bit to talk about the market the way you see it currently. Are you busy? Are you sitting back waiting for the next project, looking for the next project? What’s Spartan doing right now in the market that we find ourselves in with regards to development?

Aaron Saunders (21:55):

Yeah. Yeah, it’s a little bit of both actually. So we have four active construction projects right now. I think we have eight projects in entitlement and pre-construction currently. And what we’ve seen over the last six months is some of these projects are starting to slip, schedules are starting to slip, banks are re-reviewing budgets. The developers and owners that we’re working with are re-underwriting their projects as interest rates are changing, banks are re-trading term sheets. That’s the biggest challenge that I see right now in the market. One thing that is helping a little bit is steel prices are starting to come down, and that’s been a big impact on our projects going forward. So we have gone back and re-quoted some pricing on our projects and really just trying to get creative as we can. So we’re working with a lot of the big metal building suppliers that are well known in the self storage industry, but we’re also looking at other relationships and other avenues to do to really streamline that process and move some of that ownership onto our side.

(23:01):

So going direct to the building suppliers, getting those buildings, then hiring an erector and managing that process in-house has been one way that we’ve been able to make some projects pencil. Sometimes if the project doesn’t pencil, it doesn’t matter how good the team members are on the project, the project’s dead in its tracks. So you have to get creative and try to find new ways to build the mousetrap as they say, and if a project ends up going, and it’s a success for our ownership group and it’s a success for us and it’s a success for the investors that are involved in the project.

Scott Meyers (23:37):

So the good news is, Aaron, as you mentioned, we’re seeing steel prices come down. We certainly like to see interest rates come down right now, but who’s right now besides Spartan? Is it the folks that just have cash, are the folks that have more expensive capital to deploy and they’re deploying it knowing that in 18, 24 months, maybe longer that they’re going to refinance? Who’s rushing in during this time right now to be able to develop? Or is everybody just kind of taking a pause and sitting back from where you sit?

Aaron Saunders (24:06):

I think what we’ve seen through some of our consultants conversations and some of the bids that we’ve been seeing is there is still money in the market that’s being deployed, and a lot of that is inexpensive money coming from the REITs, which is tough to compete with. But in groups like Spartan Investment Group and some of our other companies or customers that are small private equity groups, syndicators, they are still able to get some of these projects to pencil. But the projects that were home runs or Grand Slams in the past are now a good solid double and they’re still moving the company forward. We do have one customer that’s building a project that has the majority of the funding in cash, so that is an option as well. Obviously if you look at real estate in general, that may not be the best option as far as deploying capital, but currently there aren’t a whole lot of options to deploy that capital that are still getting that big of a return and they still have that same mindset.

(25:05):

Like you said, they’re looking at refinancing those projects in the future and getting their capital back out of those projects in the future or selling those properties as well. So we are looking at some projects that are going to be C of O deals, and as soon as we’re done and turn the keys over to the owner that’s going to be marketed and probably before that it’ll be marketed, but they’ll be sold as C of O deals and there is going to have to be a little meat left on the bone to get those buyers to look at those assets in the future as well. So I think it is slowing things down a little bit, but it’s also making people be a little bit more creative in how they pencil these projects out and what they’re doing to make ’em work from a capital stack.

Scott Meyers (25:47):

So Aaron, we’re heading into a time right now in which there’s going to be some troubled loans on the construction side. Spartan looking at any of those right now doing joint ventures or maybe picking them up from the bank or an owner that’s in distress.

Aaron Saunders (25:57):

We haven’t looked at any projects that are currently in distress or any joint ventures that are potentially distressed at this point. I wouldn’t say that it’s something we’re not going to look at in the future, but it’s not anything that our feasibility team or our acquisitions team is currently underwriting. I would say from a construction point, it does create quite a bit more risk stepping into a project like that. So throughout the development phase, if your contractor’s involved early, there are a lot of lessons learned and just awareness of the project that bringing in a replacement contractor halfway through construction get lost in translation or lost in the mix as we have one contractor leave and another contractor pick that up. But if that contractor can’t complete the project and it is an opportunity for another contractor to come in, there’s going to be a lot of communication and a lot of turnover.

(26:47):

So if you are part of a project like that or if you are engaging a contractor like that, you’re going to want to make sure you do your due diligence on the contractor and that they’re really stepping down and going back to square one and understanding what were the original goals of the project, how did we get through the conceptual design, how did the conceptual design morph into the final design? What were some of the challenges that were overcome with A H J as we got approval for the project and ended up getting permits on the project? Let’s sit down at round table with all the subcontractors that are involved in the project and hey, what have been the challenges from day one on site work and getting foundations in? What was the soil like? Who’s supplying what do they have a procurement status report that lists everything that’s been bought out?

(27:35):

What’s been, excuse me, what’s been paid for to date, what deposits have been put down? There’s just a lot of turnover and a lot of parts and pieces to that. It’s not as easy as just saying, oh, contractor A, you’re out of here. The bank has assumed this construction contract and now that they’re in charge, they’re going to put contractor B in and we’re going to pick up where we left off. Really the best thing for the project would be to have that same contractor just finish the project out, but sometimes the project may get to the point of no return where that’s not a possibility.

Scott Meyers (28:10):

Well, so we’re at a place right now where we’ve got two funds that we’re launching. We’re launching another acquisitions fund to go out and buy these mom and pop facilities that are just not run very well, not marketed very well, maybe has additional land to build and add up more square footage and just turnaround operations, raise rates, the usual, if you will, in terms of our value add acquisition projects that everybody’s looking at. We also are launching a conversion fund, so not a development fund specifically, but a conversion fund where we’re going to focus on nothing but buying industrial buildings or other types of facilities, dark vacant, big boxes that we can then convert into self storage, just shorter time to market, little more predictable, less time in terms of getting zoning, whether it’s a permission or a variance. Which strategy do you feel, and let me, I guess preface that with the fact that you talked with folks all across the board in our industry and they say, well, the only way that you can find yield, the only way that you can find yield right now or a return is buying existing facilities.

(29:12):

And that’s the only way we can get funding because it has cashflow and it’s the only way we can raise equity because our equity partners want cashflow right now. And then there’s the other group that says the only way that you can find yield right now is to buy a piece of dirt, put a building on it and an income stream on it or convert a vacant big box. That’s where you’re going to get the two x to two and a half x times return on your money in order to pay your private equity partners to get into a project. What’s your take? What are you seeing in the marketplace? Do you have any thoughts or opinions to weigh in on which may be best right now or waiting? How would you weight that question?

Aaron Saunders (29:48):

I think you’ve hit it. Hit the nail right on the head. So what we’re seeing internally is there’s a lot of properties that are still value add that we’re are starting to hit the market and our acquisition pipeline for those value add facilities to streamline operations, increase rinse, there’s still a little bit of meat on the bone on some of these facilities that we’re seeing and that side of the organization is doing extremely well. We have a pretty robust pipeline and we’re excited about those projects. That being said, none of those projects include expansions, so a value add while penciling out an expansion, we are not finding a lot of those deals on that side. It’s really just around operational efficiencies and that’s where we’re driving value on that side. On the other side of it, while we haven’t been doing a lot of conversions, we do have one in our pipeline currently that we’re looking at, but the raw land is the other side and that’s where we’re also seeing it pencil.

(30:45):

So the raw land deals are penciling, not in every state that we look at, but in some of the states, kind of in the Sunbelt, we’re still able to find some raw land there that is penciling and can provide those returns for our customers, our investors, not our customers, but really it’s two different types of investors. And because I’ve been a limited partner investor for six years now, I was always focused on getting that preferred return and getting that distribution in the mail. The challenge is is that a lot of those investments that I’ve invested in over the last few years have had distributions put on pause. So while I like to take those distributions, compile and then buy another deal and just continue to roll and roll and roll, a lot of those have been put on pause. But the waterfall structure is the same as it was in the past when I was looking at those cookie cutter coupon cutter limited partnership deals.

(31:44):

So what we’ve looked at as an investment group, my wife and the small group that I invest with is why don’t we look at some of these development deals where it is a little bit higher return on the backend, but we’re not going to get a coupon. And if you look at the ones that are supposed to be paying a coupon, they’re not paying it anyway. So I’d rather have an extra 7% on my I R R than no distribution. So yeah, so I think you’ve hit the nail right on the head, and I think those are the two options that are still working and still penciling. And like you said, on the conversions, time to market is the most important thing on these projects. Getting units rentable as fast as possible is the most important thing on our projects,

Scott Meyers (32:33):

As we’ve seen these hefty delays, that has hurt us more than anything, especially with the increased cost of capital and not getting to market. Our holding costs are much greater now, and we eat into any type of contingency or reserve really quickly. And so we’re not going to delay a project to beat up either GCs or have them beat up their subs and go back and rebid and value engineer. If we waste another month or two doing that, we’ve lost any gain that we potentially could have had by saving a little bit by doing that. So right now it is as soon as we begin and we’ve identified a project, as soon as we begin, we’re doing nothing but hammering the timeframe. We’ve got to continue to move this ball down the field just as quickly as possible. That is more costly than anything. Delays are more costly than anything right now on our projects as well. So that being said, as we’re heading into then next year, interest rates may be staying the same from what we’ve seen. I think there’s going to be potentially more troubled projects coming down the pike in your crystal ball at Spartan or even as a passive investor. Aaron, what do you think we’re going to see on the horizon in terms of the market as a whole in 2024?

Aaron Saunders (33:45):

Yeah, I think we will continue to see what we’ve seen over the last six months or so. There’s going to be a little bit of turbulence with some of these current projects. Some of ’em are going to get pushed out. We may see a few of them die off. Like you said, there’s probably going to be some distressed assets that end up coming up on the market as debt service coverage ratios aren’t able to pencil or construction costs increase and the bank says, Hey, we’re pumping the brakes on this thing and we’re not going to continue to loan on this project. Those may be some challenges. So what I see in the future and what we’ve seen more of is owner carrying some of these loans and carrying those on a fixed interest rate. So I think there’s going to be a little bit more of that.

(34:28):

If owners want to truly sell their properties, they’re going to get creative as well on their side. And if they have a good broker that they’re working with, hopefully those brokers are talking to ’em and letting ’em know that, hey, this may be an option. If you really want to get this price, this is what you might have to do to get that sales price that you’re looking for. So with any challenges in the market, it creates an opportunity for people to get creative and really solve some of those challenges outside of the typical, typically what it’s been over the last 10 years or so where it didn’t matter what you bought, you were probably going to do pretty well, and if you yelled it for a little bit of time and provided a little bit of value and flipped it, the next person was going to probably do the same thing. And we’ve seen projects flip and change hands a few times as value’s been added incrementally, and now it’s going to be down to those who can really get creative, who have a solid team around them and they can speed to market. I just want to keep hammering that fact because time will kill all deals, and the faster you can get to market, the better opportunity for success you have

Scott Meyers (35:37):

A hundred percent, a hundred percent. So as we head into next year, it sounds like you’ve got a lot on your plate. Are you still looking at Spartan, still looking at more third party construction projects and going outside of that Spartan to take those on?

Aaron Saunders (35:51):

We are, yeah. And typically what we’ve done in the past is because we’re built with inside of Spartan, we’ve taken our projects and the majority of our third party projects as well through the full entitlement phase, full pre-construction, managing that whole design and then taking those projects to the field and managing construction. What we’re doing now is we’re pivoting a little bit on that and we’re really trying to focus on projects that architects have been quarterbacking or construction managers have been quarterbacking for ownership groups or even other owners have been quarterbacking on their own. And we’re trying to focus more on those permit ready projects and some of the larger projects as well. That’s going to reduce our risk a little bit. And while we’re still going to do entitlement projects and move projects through that full design process for our customers, we’re really trying to spread some of the risk and focus on those projects that are permit ready and ready to break ground.

(36:47):

Typical, typical process for a general contractor bidding at that phase and not really taking it all the way through the process. And I think doing a mix of those two things will help protect our backlog a little bit and allow us to grow organically. And instead of seeing some of these projects slip out and slip out and slip out, and it’s a manpower challenge as we have superintendents wrapping up projects, they may be wrapping up a little bit early and now it’s okay, where is this superintendent going to go? Can we double up on another project and really share some lessons learned on that project before he or she moves to the next one? But yeah, long answer,

Scott Meyers (37:29):

That’s what we’re looking for is your take as to where you’re headed. So Aaron, as we wrap up, and thanks again, I appreciate your time today and sharing with all the projects you have going on as well as some of ours. I’m thankful to take the time out and share you and your expertise with Storage Nation. So let’s, as continuing on that theme, what is first of all, the best way for people to get in touch with you?

Aaron Saunders (37:52):

Yeah, our website is spartan built.com or you can email me directly at aaron@spartanbuilt.com. That’s a r o n@spartanbuilt.com.

Scott Meyers (38:02):

Awesome. Thanks Aaron. Well, before we leave here, I always like to ask our guests, what is something that you are either reading right now that has changed the way that you maybe take a look at life or business or what is you take your pick or what is the book that you have gifted and given to someone the most?

Aaron Saunders (38:22):

Yeah, the book that I actually just finished reading is Die With Zero, and it was referred to me by Scott Lewis in our organization and it really hit home to me. I lost my father earlier this year and one of his main drivers in life was just building that nest egg for him and my mom and being able to leave a legacy for the family. And that book really digs into why people want to leave a legacy and kind of the reasons why you should rethink that option. The typical person inherits money from their parents at I think 62 is what the book says. And when I’m 62, I don’t need money from my parents today, but when I’m 62, I’m definitely not going to need money from my parents. So the book really talks about investing in experiences with your family and spending money on taking your grandkids or your kids on a fishing trip or a camping trip or a trip across Europe and really investing in those experiences while you’re alive because I know that I would much rather have had more time with my dad to go deep sea fishing or hiking together or whatever it is, than have an inheritance when I turn 62.

(39:42):

So that’s caused my wife and I to really sit down and pencil out all the places in the world. We want to see all the experiences we want to have with our kids and then prioritizing those based on our health age. And so the health age part of it and rack and stacking that list is I don’t want to wait until I’m 65 to go tour Europe with my grandkids or with my kids because I may not be in the best health when I’m 65 or when I’m 80 or whatever it is. I want to do that now when I’m young, when I can really enjoy it with my kids and do some of those things that you want to do while you’re healthy and then save some of those other things. Maybe it’s an Alaskan cruise. I can do that when I’m a little bit older where I’m not going to be trekking up the side of a mountain or whatever it is.

Scott Meyers (40:32):

Absolutely. We’re certainly not a model for that, but we became very aware of that when our kids were younger, when at our church we walked in and they had a message on just that about what we do with our kids and the time that we have. And then out in the lobby in the NAR was a jar with a bunch of marbles in it and they said, this is how many marbles there are. That represents the summers that you have with your kids and here’s one that represents the actual days you have with your kids. And when you begin to look at that and start taking ’em out and you recognize, well, first of all, you only have 18 summers with your kids, nothing’s guaranteed when they go off to college. They may summer vacation with you. And in our case, our kids, yeah, we got one of them, the two oldest right now, we did not get those summer vacations.

(41:20):

So it causes you to be more intentional and yeah, you’re a hundred percent correct. There’s no reason to save money for the bigger vacation later on with maybe their spouses or their kids. There’s no guarantee. So do it now and build it while you can because once they’re gone you recognize, oh man, we could have taken one more vacation, or I should have spent more time doing this or that while I had my health and while we had the money. And so again, we don’t have it all figured out. But I was thankful, and I have read that book as well, listen to it on audio, but just early on, just having that example and the awareness that, man, we only have 18 summers with our kids, we need to make the most of it. So very, very good advice for Altos parents out there. Alright, so with that, Aaron, any other parting words that you have for Storage Nation before we sign off today?

Aaron Saunders (42:07):

No, I was just grateful for the opportunity to be here. Scott, excited to continue to work with you and your team and the mastermind that you’ve built, getting plugged in with that group has been invaluable to me and Spartan Investment Group as well. So thank you for all you do for the industry.

Scott Meyers (42:24):

Yeah, well my pleasure In the Mastermind, as you know, it’s not about me. The value is the people that are in the room. And we are thankful for having you and Scott and anybody from Spartan that shows up with the Mastermind to bring the value. It’s just that’s what it’s all about. And that’s why it’s such an incredible group. So thank you. Alright my friend. So with that, great spending time with you again, Aaron. I’m looking forward to being in the same room with you again here very soon.

Self Storage (42:52):

Hey gang, wait three things before you leave. First, don’t forget to follow the Self-Storage podcast and turn on your notification so you never miss another episode. And while you’re there, please leave us a five-star review if you like the show. Second, be sure to share your favorite episodes and more via Instagram and don’t forget to tag us. And lastly, head to the links in the show description and hit follow on Twitter and Facebook to get a front row seat as we grow and scale our business and bring you along with us.