In this episode of The Same Day Podcast, host Mat Zalk sits down with Jacob Vanderslice, Co-founder and Principal of VanWest Partners, to discuss maximizing returns in self-storage real estate. They explore the impact of effective management on profitability, the benefits of long-term tenancy, and the role of market conditions in shaping investment strategies.
Maximizing Returns in Self-Storage Real Estate
Jacob Vanderslice is the Co-founder and Principal of VanWest Partners, a Denver-based real estate investment company specializing in acquiring, developing, and managing self-storage facilities. Under his direction, the company has deployed over $375 million in capital for value-add self-storage facilities across the USA. With expertise ranging from raising private funds to managing hundreds of units, Jacob brings a wealth of real estate investment knowledge to the table. He has navigated various aspects of the industry, experiencing both the highs and lows, yielding tangible insights into successful storage investing.
Here’s a glimpse of what you’ll learn:
- [5:43] Jacob Vanderslice’s journey in real estate and why he focused on the self-storage market
- [7:22] VanWest Partners’ self-storage strategy
- [8:53] Jacob talks about the difficulties in finding good deals in the current market
- [15:13] An example of a value-add self-storage deal in a Midwest market
- [17:17] How operational inefficiencies can unlock hidden potential and increase ROI
- [22:15] Factors affecting performance in various market conditions
- [29:51] The eviction process in self-storage real estate
- [32:28] How investor relations and transparency are handled efficiently at VanWest Partners
In this episode…
Maximizing returns in the self-storage real estate market demands a clear understanding of the current economic landscape. While the market presents challenges, it also offers opportunities. What are the secrets behind successful investments in this often-overlooked asset class?
According to Jacob Vanderslice, a seasoned real estate investor with extensive experience in self-storage, the key lies in effective management and strategic value-add investments. He emphasizes that while market conditions have tightened, there are still significant opportunities to generate strong returns through proactive management, such as implementing dynamic pricing strategies and improving operational efficiencies. Jacob also notes that understanding customer behavior and leveraging long-term tenancy trends can significantly enhance profitability, even in a fluctuating market.
Resources mentioned in this episode:
- Mat Zalk on LinkedIn
- Yonatan Schmidt on LinkedIn
- Walter Bowser on LinkedIn
- Keyrenter Property Management
- Keyrenter Property Management in Tulsa | Oklahoma City | Arkansas
- Keyrenter Property Management email address: [email protected]
- Chris Lile State Farm
- Jacob Vanderslice on LinkedIn | Email
- VanWest Partners
Special Mentions:
Related Episodes:
- The Value of Private Money in Real Estate Investing” with Jay Conner on The Same Day Podcast
- “Successes and Failures in Real Estate” with Deren Huang on The Same Day Podcast
Quotable Moments
- “My whole real estate career has just been a series of experiments and failures, over and over again.”
- “Returns are not what they were a couple of years ago. But that hasn’t stopped us from finding value.”
- “The fundamental demand driver within the storage space is mobility. As that increases, so does the need for storage.”
- “There are no fair housing laws in self-storage, making the eviction process more straightforward.”
- “Providing real-time access to how things are going, whether good or bad, is important for investor transparency.”
Action Steps
- Explore undermanaged properties for potential investment opportunities: This allows investors to find assets that can be improved and optimized for better returns.
- Monitor market conditions to plan your investment strategy: Timing is key in real estate, and observing market trends can lead to better decision-making for purchasing or selling assets.
- Leverage technology for transparent investor relations: Software solutions like real-time investor dashboards enhance trust and communication with investors.
- Implement granular revenue management for storage units: Regularly adjusting rental prices and strategically managing occupancy can maximize profits.
- Stay educated on the eviction processes and local laws for self-storage facilities: Knowing the legal landscape can streamline operations and reduce the time required to turn over units to paying customers.
Sponsor for this episode…
Chris Lile at State Farm Insurance:
This episode is brought to you by Chris Lile at State Farm Insurance.
Chris Lile at State Farm helps you protect your most precious assets and investments, including home and auto.
To learn more about how you can save double digits on all your insurance needs, visit diallile.com or call Chris’ office at 918-878-7771.
Keyrenter Property Management:
This episode is also brought to you by Keyrenter Property Management.
Keyrenter Property Management is a full-service property management company that helps clients buy, renovate, and operate real estate assets.
The team helps clients build wealth while taking the headache out of property management.
That’s why, no matter what rental you have — single-family homes, condos, townhomes, or apartments — they can give you the management solutions you need.
To learn more about their services, go to https://keyrenterpmc.com/ or send them an email at [email protected].
Episode Transcript
Intro 0:05
Welcome to The Same Day Podcast where we discuss driving incremental business growth and other topics related to real estate, property management and entrepreneurship. Now to the show at hand.
Mat Zalk 0:20
Mat Zalk here, the host of The Same Day Podcast where I connect with top business leaders and real estate experts. Past guests include Jay Conner, talking about raising private money, and Deren Huang, who has 100 units under management and a host of industrial properties. Great shows from back when. Today’s episode is brought to you by Chris Lile State Farm. Chris Lile State Farm helps you protect your most precious assets and investments, whether it’s your home and auto investment rental properties or other valuables, call Chris Lile State Farm for a quick and painless phone call to potentially save double digits on all of your insurance needs. This is especially important in our current environment at the end of July, when many insurance carriers have taken or have seen significant premium increases, but Chris Lile State Farm have seen far lower increases than many other insurance companies. But anyways, visit dial lyle.com or call his office at 918-878-7771. Today’s episode is also brought to you by Keyrenter Property Management. At Keyrenter Property Management, we are a full service property management company helping you buy, renovate and operate real estate assets. We help our clients build wealth while taking the headache out of real estate ownership. So Jacob, you know how hard it is to line up contractors to get make ready, he’s done in a reasonable amount of time. If you don’t have the scale that VanWest Partners does. You know that contractors are busy, the work seems to drag on forever, and all that leads to lost rental income. You’ve done rentals in the past a ton of fix and flips, and now in your current business of self storage, you know that there’s similar problem. But at Keyrenter, we line up our dedicated vendors so that turns can happen quickly, and we get more money back into the pockets of our owners. That’s why, no matter what rentals you have single family homes, condos, time, townhomes, apartments. We have the management solutions you need. Go to keyrenterpmc.com or email us at info@keyrententerpmc. com. Today’s guest is Jacob Vanderslice. We are in for a treat talking to Jacob. He is the Co-founder and Principal at VanWest Partners, a Denver based real estate investment company specializing in the acquisition, development and management of self storage facilities. Under his fundraising leadership, VanWest has strategically deployed over 375 million in capital in value add self storage facilities across the United States. Jacob Vanderslice, welcome to the show. How are you?
Jacob Vanderslice 2:39
Mat. Good to be here today. I wanted to start recording 15 minutes ago. We’ve got some good material.
Mat Zalk 2:44
We have but we haven’t covered the best part of it. I want to know about your general aviation experience. What are you flying? Where are you going? Let’s talk turkey.
Jacob Vanderslice 2:52
Are you a pilot?
Mat Zalk 2:53
I’m a pilot.
Jacob Vanderslice 2:55
Dude. Are we? Are we here to I mean, we’re going to kill the whole podcast by talking about aviation, and everyone’s going to stop listening. He doesn’t care about flying.
Mat Zalk 3:02
Everybody cares about flying.
Jacob Vanderslice 3:04
Yeah, I’ll be really quick here. I started. I started flying when I was 16. Cool. Got my private when I was 18. Always just been in love with anything that flies. Always loved aviation. I got an uncle who was a retired United pilot. Another uncle was a GA pilot with a nice little Mooney, which is kind of like a quick, pretty, smaller and gets you around fast. Got my instrument rating in college, and I was thinking about going military. And I don’t mean regrets in life, but I guess if I do have one that’s never having flown for the military, I just always wanted to, and never did, and now I’m too old, barring like, a, you know, major conflict, you know, yeah, they’re probably not gonna call me up to fly. So, yeah, I just, I read junkie Cessnas at our flight club. There’s a nice 182 turbo, not junkie. Yeah, they’re, yeah, I was working on my helicopter rating quite a while ago.
Mat Zalk 3:55
Wow. And that’s totally different. I mean, that’s, it’s not the same. If you can fly a plane, it doesn’t mean you can just jump in a helicopter and and fly the rotors, huh?
Jacob Vanderslice 4:04
Yeah, it’s kind of a goat ready? You’ve got all these different opposing forces. You’ve got the cyclic and the collective, and you’ve got the you’ve got the pedals on the floor, and they’re all trying to do different things, yeah? But I didn’t you know when you’re flying, when taking off and landing a helicopter is magical, but when you’re going A to B, it’s about that flying a fixed wing, and it’s, you know, three or four times as expensive, yeah, so maybe I’ll get back into that at some point. But, yeah, love aviation.
Mat Zalk 4:30
I love it. I’ve got a plane. We fly a Piper, Malibu, and him 350 it’s, it is amazing. I’ve got four kids, so it’s hard for me to fit everybody in, and my parents want to go somewhere, or whatever it’s it is getting to the point where it’s a little bit too small, but it’s an amazing aircraft. It’s a 2020, flying to low minimums is easy when you have a glass cockpit. It’s a it is a beautiful, beautiful airplane. And I enjoy flying it. We fly to our different markets, and we fly a little bit for the family. And. Vacation and stuff, but it’s, it is amazing. And we’re in Tulsa. I mean, when you’re in Denver, it you have so many direct flights. But in Tulsa, for me to get to Nashville, where my brother in law and sister in law live, I got to go through St Louis, which makes no sense. But hopping on 350, whiskey is an easy visit. Much easier path, you know. Yeah, a lot more fun, too. Way more fun. Anyways, okay, we can, we could talk GA all day, and I do love flying and being up in the clouds is is an amazing experience. But let’s talk real estate and let’s talk self storage. Value add self storage deals. I want to ask you the first question, which is, how in the heck did you get into self storage? And then we can dive a little bit deeper into the meat.
Jacob Vanderslice 5:43
Yeah. I mean, my whole real estate career has just been kind of a series of experiments and failures, kind of over and over again. For many years, we did a lot of single family volume, which I know it was the main business the year we were buying at the trustee sales with our stacks of cashiers checks. And, you know, had we known what the world was going to do, I wish we would have held on to more of them than we actually did. We sold most of it over the years, but probably did 11, 1200 fix and flips. Wow. We did a joint venture with Starwood Capital back in 13 and 14, when the institutional players got in the SFR space, that was the Wild West back then. Yeah, we’ve done some townhome development, some multifamily, some adaptive reuse, kind of historic preservation, retail, a lot of kind of, kind of what’s happened in Tulsa, in the downtown area, I love building some reposition there. We looked at storage for a number of years, and I’ve got two partners, and one of them had built a storage facility with his family when he was like in high school, and his parents still own it, he kind of helps oversee it for him and and he’s like, Hey, we should get into storage. I don’t know anything about storage. So we, we found a deal, and everybody that we took it to said no, and the last group we took it to said yes. So we did kind of this programmatic joint venture with a few development deals at the time. It wasn’t really an intentional pivot into a new asset class strategically or fundamentally, it was more just kind of try it out and see what happens. And it went okay, so we did some more, and that JD ran its course with its capital deployment. We wanted to keep going in the space. So we did a few single asset syndications leading up to our first fund in 19. Fund two was 21 and we just closed fund three. So we’ve got 38 facilities, just over 3 million square feet, about 19,000 units. Wow. We do do some development, but most of the deals that we do are value out acquisitions.
Mat Zalk 7:35
But so generally, you don’t syndicate each deal individually. At this point you run you only do funds. You raise a fund, and then you deploy it, and there’s a life cycle of a fund. And how do you expand?
Jacob Vanderslice 7:44
We the market is not ideal right now, I don’t think to launch a new fund, but we do have deals that we like, and we’re not finding them, you know, as often as we were a year ago, or certainly two or three years ago. So we’re kind of in this in between phase right now, where we’re fund three is essentially closed, and we’ve got two single asset vehicles going right now. One’s in the MSA, one’s in Jacksonville, Florida. We’ve deal working on in Vegas, so we’re still doing deals, but we’re not seeing the deal flow to necessarily justify a full new fund vehicle. I expect that’s going to change probably q1 or q2 of next year, that we have better visibility into the election interest rates. You know, all the kind of unknowns right now, but yeah, for right now, we’re just doing a single asset investment vehicles, kind of fund three in the next thing.
Mat Zalk 8:34
For those of us that are uninitiated in the world of raising funds, why is this market? What about interest rates today? And this market is bad for raising a fund. Is it that people just have their parking their money in 5% yield, 6% yield opportunities, and they don’t want the risk at a 9% hurdle rate or something? What about it?
Jacob Vanderslice 8:53
Yeah, it’s, you know, sentiments generally negative, and a lot of people have been burned on, specifically multifamily syndications the last couple of years, equity wipes. I’m hearing about a lot of problems out there, a lot of it’s because of floating rate debt and probably aggressive underwriting assumptions. But if you think about it, let’s say I’m like, Mat, I can give you a 15% IRR and a 2x multiple. You might say, Oh, that’s pretty good, but you can get a 5% return in whatever a Treasury or a CD, and with us, you’re you’re not liquid, you’re stuck in the deal for as long as we own it for your junior to senior debt. So you might argue that you know whether this is right or wrong. You might argue that, hey, I’m taking 10 times the risk or three times the return, right? And that 5% return is arguably guaranteed, and hopefully the return that I’m targeting 15% over the life of the deal is materially higher. But that’s kind of the disconnect right now, just the the risk reward. And one other comment on this too. A lot of lot of folks we talked to. Uh, are, but as you said a moment ago, kind of waiting and seeing. And I’ll ask more detail about that sentiment, and they’ll say, Well, I’m going to wait till, you know, I see better deals, and I understand that sentiment. But to a degree, you’re kind of inferring that you can time the market right, and you’re also assuming there’s going to be a trough. There may not be a trough. A trough had been six months ago.
Mat Zalk 10:21
And there wasn’t one like, in 2020, March 2020, people were like, I’ll wait and see. I’ll see what happens. And it never happened.
Jacob Vanderslice 10:28
We were sitting on March of 20 with a bunch of deals under contract. Like, gosh, what do we do? You know, we keep going to be stocked. We kind of see what happens. We decided to keep going. And we’re like, we’re smarter. I should say we’re less stupid than we used to be. We’ve got a lot of money behind us. We’re going to clean up this year. We’re going to just have steel, steel deals, and then what the opposite direction? Right? Single family home values cap rates compressed, so you can’t time the market. If you think there’s a trough coming, maybe there is. But I’ve been through a few cycles, and in my experience, you don’t know when the trough was until a year or two later in the review? Yeah, really, there’s not a good time or to buy, not a bad time to buy. There’s just deals with good risk adjusted returns, and there’s deals that lack risk adjusted returns.
Mat Zalk 11:10
Yeah, I also get the sentiment that some people are just uncertain about the future their own cash flow positions. To your point about locking up cash for for a three, five year period, they say, Well, I don’t know what is going to happen with the outstanding deals that I’m in. Who’s going to call capital? When are they going to call capital? What’s going to happen with the adjustments to the various mortgages that I have, and so I’d rather remain a little bit liquid, or keep this liquidity in a, to your point, a CD, rather than tight for five years?
Jacob Vanderslice 11:39
Yeah, yep. So in this game takes a long time, and it’s very slow, but if you’re not in the game, you don’t have the benefit of that time, right? Yeah. So anyway, yeah. So one
Mat Zalk 11:52
of the benefits of the single family rental market that we see from our clients, and something that they talk about and like is the depreciation, specifically, being able to accelerate depreciation with cost segregations and other things, and we’ve talked about that on this show before in detail with folks that are experts in cost segs. Is that possible in the in the Self Storage business?
Jacob Vanderslice 12:12
It is. It’s not as attractive as residential, especially multifamily. And there’s a couple reasons for that that I won’t go too far into, but one reason is, when we’re buying a deal, not a development deal, but a value add acquisition, depending on the market, we’re generally doing a goodwill allocation for the business. Yeah. So we’re allocating a portion of the purchase price to the business. We’re allocating a portion to the real estate. And the reason we’re doing that is to reduce the risk of a material assessment in our property tax, sure. So we’re saving operating expenses. We’re we’re potentially getting a higher year one, year two, year five. Noi, because that tax low is lower. But the problem with that, obviously, is you can’t depreciate goodwill applications, right? So first of all, you’re only depreciating 70% actually you’re depreciating 80% of 70% right for the building allocation. And then secondly, self storage does not depreciate from a bonus perspective, like residential, it’s like steel. It’s like a yeah, you’re bonusing the roll up doors. You’re bonusing your HVAC system and maybe the one bathroom you have the leasing office. So it’s attractive, but it’s not nearly as turbocharged as residential is.
Mat Zalk 13:25
Yeah, is there? Are there good IRS guidelines on what you can allocate to Goodwill? Or is it just kind of a thumb in the air?
Jacob Vanderslice 13:33
Yeah, it’s it’s not an IRS. It’s not a federal thing. It’s more of a local municipality issue. If you think about it, the the IRS would, kind of would kind of want you can’t appreciate it, yeah, they would want you, yeah, yeah, exactly. I mean, they would, they would want you to allocate all of them. They would want you to do the goodwill allocation versus appreciate the entire building. So it’s more of a municipal conversation, and we do a lot of kind of asking for a friend, calls taxing authorities, like, Hey, listen. How do you guys treat goodwill allocations? How do you view those? Some don’t care about them. Other markets, like Ohio, for example, you might get sued by the school board if you try to do that to try and claw back some of those property taxes. So, yeah, it’s a, it’s a local jurisdiction issue, federal right, and just to.
Mat Zalk 14:20
Yeah and just to run that to the ground for anybody that didn’t understand that. The idea is that if you’re if you are allocating 50% of the value of the of the Self Storage to Goodwill, then there’s only 50% left that they can assess the tax base on. I probably wouldn’t be it would be 8020 or whatever it is, but you’d only have 80% of the income of the of the taxable tax base to draw income from local municipalities perspective.
Jacob Vanderslice 14:44
And the assessor will see the deed transfer on the real estate price and not the goodwill allocation. So just kind of a way to save property taxes. And it generally 7030 real estate to Goodwill. That kind of varies by market, but that’s sort of a high level rule of thumb.
Mat Zalk 14:58
Yeah. What’s an example, a typical example of a of a deal that you’d see in value add self storage, like, how would it what are the numbers generally look like in a in a decent Midwest, cash flowing market?
Jacob Vanderslice 15:13
Yeah, we let’s see. Let’s see here. I’ll give you two examples. In fund three, we have a deal in Green Bay, Wisconsin, and you wouldn’t think that Green Bay is necessarily a place that you’re heavily targeting for real estate investment, but it’s got a good story. It was about one of the best places to live, maybe just in the summertime and lots of population growth, it just kind of made sense. Rents up there are very low, and there’s very little institutional read activity. So competition is somewhat limited, and operator sophistication is also limited, so we bought a deal that was highly physically occupied about a year ago with way below market rents, no tenant insurance in place. There’s a lot of ancillary income streams and tenant insurance probably not unlike residential and the seller didn’t have any of those in place. So our value proposition was advertising more, allowing customers to lease online, implementing tenant insurance, ancillary income streams like U haul, merch sales and just raising rents over time. And we’ve seen material NOI and revenue growth, and our physical occupancy is about the same. We’re buying a deal. This is more of an extreme example in Atlanta in about a month, and the seller operates at it himself. Doesn’t have any employees, runs it from his cell phone and runs it from liquor store that he owns next door. So if you want to lease a unit, you have to come into the liquor store. You can’t make a payment on the website. You can’t make a you know, can’t sign a lease on the website. He has no 10 insurance in place. So this one is kind of a more rapid value lift in the first year than the lack of ownership sophistication. So those are two examples that we generally see. Well occasionally, by early stage, lease up deals that were just completed, the seller hired a third party management company to start leasing, and maybe they got to 20% we come in and buy it at a discount from a stabilized value, and we plug in our operational platform to continue driving occupancy.
Mat Zalk 17:04
And from from the Atlanta liquor store operator, is he? Does he not have a space right now that is considered a leasing office? Would you have to build on a leasing office or dismantle some two storage units to create a leasing office? Or does he have it?
Jacob Vanderslice 17:17
He doesn’t use it. He just completed an expansion of about 20,000 square feet. So he built another 20,000 feet on some excess land, and within that expansion is a leasing office that’s almost done. I think they’re painting it right now and like putting on the kiosk. So he didn’t have a leasing office before it was a liquor store, but now he does. So we don’t have to build one. Got it. Capex on this deal is pretty minimal, and I think carrying maybe 50 grand for signage and security and some other kind of R and M issues, but most of the value creation on this one is just more effective management.
Mat Zalk 17:50
And is the example you gave earlier, 15% IRR in a two times equity multiple. Is that typical of what you see in deals historically?
Jacob Vanderslice 17:58
Yeah, this, I mean, I’ll tell you, investor return expectations, despite the increase in the risk in the environment, investor return expectations should have gone down in the last year or two, not up. So we’re paying maybe a slight discount from what we were buying these things for 18 months or two years ago. And that’s a broad stroke statement. It’s all just market dependent, obviously, but the reason returns are not, you know, IRRs in the low 20s and multiples in the mid twos are, first of all your lower leverage, right? You’re lucky to be even cash flow on a valued acquisition out of the gates. So lower leverage means more equity, and your interest rate, obviously, is higher than it was a couple years ago, as we all well know, and we’re all tired of talking about that. So yeah, returns are not they haven’t gone up. They’ve anything. They’ve kind of softened, yeah, now being said, obviously, we don’t, we don’t know each other. So Believe, believe whatever you want when I tell you this. So we strongly believe that we bring in very conservative, reasonable and achievable underwriting assumptions where we’re not saying, hey, if everything goes perfectly, we’re going to try to deliver a two multiple and a 15. IRR, we’ve, we’ve sold six deals in the last year, so kind of well into this cycle. Five out of the six materially exceeded our writing expectations. One out of the six very much underperformed, but it still made money. I think it did like a seven IRR. So we’re always wrong on our assumptions, but we’re typically wrong in the right direction.
Mat Zalk 19:26
Well, we’ll see if it’s any news, everyone’s seeing increased borrowing costs. What are you Where are you typically borrowing from local commercial banks, like in Green Bay? Would you find a Green Bay lender, or is this a Freddie Fannie kind of small, balanced loan situation.
Jacob Vanderslice 19:43
Well, the best debt in the world is United States, multifamily agency debt. You can’t touch that debt, those debt terms in the self storage space. So it kind of depends on the product type. We refinanced a couple of our fund two deals. There was a one. Of them was really under levered, and one of them had our one and only remaining floating rate loan in our fund two portfolio. Oh, wow, we refinanced those into a 10 year fixed interest only loan at 6.64 which, relative to today, is pretty good. Yeah, right, yeah, 10 year fixed, 6.64 but you’re not going to get that loan type on a deal that’s got a lot of value runway just because of a just because of a debt coverage issue, right? You get a lot of my growth to do. So the term sheet we got for this Atlanta acquisition is from a life insurance company. I think the interest rates in the in the high sixes, 24 months interest only, good 60. We also have an acquisition line of credit from a ultra high net worth, kind of single family office here in Denver, and that’s sofr plus three with prepayment penalties. So that seemed like expensive debt, and relative to last couple of years, it certainly is. But if you believe rates are going to drop, we don’t. Which we do, we don’t know when. Maybe it’s going to be September, we’ll see, I think they’re actually doing their press conference here now, or maybe just did. But if you believe rates are going to drop, we don’t want to be saddled with a prepayment penalty or intention to refinance after we execute our value creation strategy.
Mat Zalk 21:14
But does your does your 10 year debt have yield maintenance provisions or no?
Jacob Vanderslice 21:19
It does. It does. And that’s kind of the give and the take, right?
Mat Zalk 21:22
But six, I mean, six, whatever you said, 664, whatever you said, it’s pretty, I mean, even, even with a.
Jacob Vanderslice 21:26
Yeah it’s so and it’s within a fund vehicle, and we’ve sold three of our deals in that portfolio, but with our remaining 11 deals, we have that blends our portfolio wide interest rate out to 4.5% and our next debt maturity date in that portfolio is until 2031 so yeah, we might be upset about yield maintenance and defeasance later at some point, but I think it was the right thing to do in this environment just kind of lock it in and we don’t have to do anything further with our debt for a long time.
Mat Zalk 21:58
Yeah, before we pressed record on the podcast, you were talking about some assets in Tulsa, and you mentioned, you know, times where they had been performing better and worse. What are the general market conditions that lead to good performance and bad performance of an asset?
Jacob Vanderslice 22:15
Yeah, these, I can talk about that in the macro, but first of all, do the micro on these Tulsa deals, these things were just very poorly managed, huge delinquency rates. They were highly occupied, I think, in the low 90s. But you’re not a hero if you’ve got 92% occupancy, but 40% of your customers are delinquent, right? Yeah. So it took us a long time to remediate that delinquency and kind of get some of the bad actors out. We also had some major capital improvement projects on those deals, new roof new roof systems, new roll up doors, seal coating the asphalt gate systems, and that stuff can be kind of disruptive to your customer base. So all of that kind of coupled with 2023 to go into the macro side. 2023 was a fairly anemic consumer demand year and self storage space. And you know, what goes up must come down, and the consumer demand of the post covid years could not sustain, right? You’re not going to see 20% year over year, noi growth like you did coming out of 20 into 21 and 21 and 22.
Mat Zalk 23:16
But what caught, what caused that that people were just absorbing price increases, or that there was much more demand, like people were moving out of their houses into their parents’ houses, and they had to actually just store stuff. Is that? What was going on?
Jacob Vanderslice 23:29
Yeah, it was all the above. I mean, if you’re let’s say you’re working from home. Now, used to go to the office. Now you work from home. You want to clear out the third bedroom, you put the stuff in the storage unit so you can have your zoom around. Yeah, yeah. People really the fundamental demand driver within the storage space is mobility, and people moving up and down the economic ladder, whether it’s a good reason or a bad reason, that they’re that they need storage as mobility increases, people need storage and mobility to kind of stabilize in 23 the single family home market kind of froze up because of interest rates. Obviously, you know that better than I do, but this year really started in February through we’re recording this at the very end July. We have never seen occupancy growth in the portfolio that we’ve seen the last four or five months. So that wow back, I think. And there’s a lot of nuances to that. The REITs are doing new pricing algorithms where they’re more heavily discounting their advertised rate than they have historically before, but then they’re more rapidly moving that customer up to market rates. And you know, before 2023 you might move in with the first month free promotion, and your rate would stay the same for probably nine or 12 months, and they would kind of ease you up from there. And now you move a man at a huge discount, but now they’re increasing you by maybe 50 up to 100% within like three months. So if you look at Self Storage rents around the country from a street rate or advertise rate perspective, you might say, oh, man, this business is tanking. Street rates are way down, and that that in and of itself, is true, but what you’re not seeing is that. Achieved rates. So what that operator is actually achieving an in place rent is very different than what they’re advertising.
Mat Zalk 25:09
Interesting. Does the movement does the so you’re saying that the price increase over the last six, seven months, or you said from April to July, or whatever it was, is because of that jumping in in the rates from the promotional price to the new price of 50 100% increase, or is it because are you attributing some of that to people feeling the pinch now, the consumers have inflation having settled in over the last 18 months, or 24 months, rates being up, etc, and that they’re actually they’re feeling it more, and it’s they’re having harder time paying rent, and they’re moving it with their parents now, even more so than during covid, potentially.
Jacob Vanderslice 25:50
Yeah, it’s, you know what? When the deal is going better than you expect or worse than you expect, you never entirely know why, right? That. There’s some data points to it, but I think a few, few reasons why we’ve seen some of this growth this year. The consumers, kind of the storage consumers cut back a little bit more for whatever reason that that might be. I’m unclear people, maybe they’re maybe people are shifting markets from jobs they’re having to go back into the city now, because they were out of the city for a while now they have to go back to the office. But part of it too is we’ve gotten a lot more proactive in our revenue management team marking rates to market more often. We’re doing it daily now. So we’ll we’ll do this data scrape every day, and we’ll look at how long a customer’s been in the unit for what the sub market comparables are for, say, for example, for a 10 by 10, and we’ll implement just little tranches of what we call ECRIs, existing customer rent increases across the portfolio on a daily basis. So a component of that revenue growth, I think, has just been more proactive and granular and kind of real time revenue management, but also just more aggressive marketing tactics, also dropping rents and some of our demand unit types, we’ll just drop them well below market. And a unit producing some revenue, obviously, is better than, you know, producing no revenue, yeah. So all those factors combined have created a pretty good year so far in our portfolio. Well, we’ll see for the second half.
Mat Zalk 27:19
Do you have a sense of whether, if, what the elasticity of demand is, essentially, if I’m paying $100 for for, you know, 100 square feet, how high do you have to go on that 10 square foot unit for me to consider moving to another 100 square foot unit back at the original $100 price? Yeah. I mean, because it costs you, the movement is like, I got to get my stuff, I got to get a truck. I’ve got to move all the crap out. It’s like, really, it’s really painful to move.
Jacob Vanderslice 27:47
So we’ve done, when we do our ECRIs, we’re looking at our at our at the rent increase on the customer, not only through the lens of the percentage increase, but also the dollars. So a customer paying a really low whole dollar rate can sustain a higher percentage increase, and somebody paying a really higher whole dollar rate, we also measure after an ECR ad goes out, who knows how accurate this data is, and whether people are telling us the truth or not, but we’ll Pull our customers on why they moved out and night, it sounds like a cliche, but 90% plus of the customers that move out after an ECRI, we’re going to move out anyway. Yeah, so very few of them are moving out directly because of that rent increase. And to your point, a moment ago, if we if we’re charging you $100 a month, and we increase into $115 a month for a 10 month for a 10 by 10, and they still need a storage unit, and they don’t think they’re going to be there that long. It’s painful to call a buddy and truck and move to another unit that you might be saving five or $10 a month on. Yeah. What’s also interesting is, despite the fact the leases are a month to month, the duration of our 10 tenancy is much higher than you might expect, in our fund three portfolio. We haven’t owned the deals for this long, but over 50% of our customers have been storing in their unit for more than three years. So it’s a very sticky customer base.
Mat Zalk 29:13
It’s a fifth or sixth home, fourth, fifth, sixth home.
Jacob Vanderslice 29:18
Yeah, they’re kind of out of sight, out of mind. It’s stuff they don’t want to deal with. Maybe it’s sentimental, maybe it’s all get to that someday, and it’s their credit card or the bank Academy month for $150 and it’s enough to annoy but not enough to make them kind of do something about it. Yeah, yeah. And that’s our typical storage customer. They they move in, they can, they need it for three or four months, and then 18 months later, after two rate increases, they’re still in there paying the freight.
Mat Zalk 29:41
Yeah. So you mentioned in the Tulsa deal, one of them was kind of poorly managed, and there was low collections. What is the eviction process typically like in a in a self storage?
Jacob Vanderslice 29:51
It varies from state to state, and I’m going to sound like a dirty capitalist here, which which I am, I guess. But there are no fair housing laws, and so. Storage. Yeah, yeah. So the eviction process a little more simple. And to be clear, we try to cut deals with people and work with them as much as we can, but sometimes they just go dark and their number doesn’t work and they don’t respond in emails. So typically, if you’re call it two weeks late, we’ll turn off your gate access, sometimes sooner so you can get into the facility after after about three or four weeks, again, it varies a little bit. We’ll overlock their unit. Let’s say they follow another vehicle and they still get in. We’ll put a red lock on their unit, and then they’re still not paying. We’ll auction their contents off. And the main reason we’re auctioning their stuff off is not so much from the revenue from the auction, from the contents of the unit, which sometimes there’s something, but very rarely is there revenue. It’s more to get that unit back in service to a paying customer. So it’s typically probably two months from when they roll over on you to when you can actually take possession.
Mat Zalk 30:51
And so there’s no core process. There’s no it’s just you red lock it, you post a notice on the on the thing for a couple of days.
Jacob Vanderslice 30:58
Few and far between. Some municipalities, you have to go to court. And we were going to see this judge so often, he basically told us, don’t, don’t come back again. Like, what are we supposed to do? Is the law? But, yeah, most, most, some markets, you’re not going to the court process. You have to do like, a public notice and a little newspaper that nobody reads, you know, auction contents of this unit on this date. But other than that, it’s fairly seamless.
Mat Zalk 31:23
But so if you’re not able to make enough money to pay back the the debt, you end up throwing everything in the dumpster, pretty much, right?
Jacob Vanderslice 31:32
Yeah, pretty much. Well, we auction the cost. It’s one of the we use a third party, kind of auction service company to do this, because it sounds something we want to mess with. But one of the requirements for the auction buyer, whether they want the stuff in there or they don’t, they have to empty all the contents, take it off site and broom clean the unit.
Mat Zalk 31:50
Got it so they’re not, they’re not buying at auction individual parts. They’re buying at auction the entirety of the contents of that storage unit, correct? And you do what you will, but it has to go.
Jacob Vanderslice 32:02
Yeah, exactly. Maybe there’s an antique typewriter in there that they want, and there’s enough spread for them to make some money on that typewriter. And, you know, get a hallway dumpster somewhere and pay for the dead feet. Get rid of all the other stuff.
Mat Zalk 32:15
Yeah, all right, sounds like you really know what you’re doing. I’m not going to question any more of the of the of the history of the returns. What? What do people do if they want to get involved in investing in value, add self storage with VanWest Partners?
Jacob Vanderslice 32:28
Well, we certainly do not know what we’re doing, but we feel less done every year.
Mat Zalk 32:32
Step by step, little by little.
Jacob Vanderslice 32:35
Yeah, we don’t learn what to do. We just learn kind of what not to do. And we’ve, we’ve encountered enough knots that I think by default, there’s not much left to screw up. But always love talking shop about real estate. Folks can email me [email protected] go to our website, vanwestpartners.com or hit me on LinkedIn.
Mat Zalk 32:51
And is there a typical size check that you won’t go below, won’t go above?
Jacob Vanderslice 33:00
It varies from vehicle to vehicle. To vehicle. You know, we have an $8 billion institutional partner in some of our deals, and we have a lot of people who have done self directed IRA investments for 25 grand and kind of everywhere in between. Yeah, typically, I mean, we advertise minimums of 100k but at our discretion, we can take capital contributions that are lower. A lot of folks will come in for 50 to kind of get to know us. And to be clear, that’s not a GET TO KNOW YOU amount of money. It’s a lot of money for anybody you myself, anybody listening, included, but yeah, all different check sizes.
Mat Zalk 33:32
And one one final question, you guys are known in the industry for having an amazing investor relations platform and providing transparency to clients on the performance of the assets. What are you using to do that? How often would clients expect communications and through what media? I guess.
Jacob Vanderslice 33:48
Yeah, we do a couple things. We provide kind of sporadic updates. When I say sporadic, I mean unscheduled. If something happens, like we bought a deal on the fund, or we refinance something, we also do quarterly reports. We’ll do kind of updates in between two on just little things that might happen along the way. We do a fair amount of video content with these investor updates, and one of my partners is a software engineer by training. And we also have a real time investor reporting dashboard called clear insight. And this isn’t a white label software program. We actually built it. And the way it works is it’s got an API into our property management software, so it pulls all these different reports. You can look at historic revenue streams, net rental activity. You can go back in time as far as we’ve owned the asset for you can see kind of the peaks and troughs, the seasonality. You can look at physical occupancy, delinquency rates. You could even map where all our customers live in a given location.
Mat Zalk 34:42
And that’s all. That’s all real time accessible for investors in in a deal or in a in a fund.
Jacob Vanderslice 34:51
It is, it is, yeah, it’s, well, when I say real time, it updates like four times a day, sure. You might sure hate it. It’s a couple hours old, sure. But yeah, it’s a. So a lot of folks will log in, you know, once a week to just kind of see what’s the portfolio done so far this week, this month, how did things go? It’s all graphed in a format where you kind of understand, there’s some education to kind of understanding the different metrics in there, like our insurance penetration. That’s one thing that you may not understand very well, unless you kind of hear about it from us. But, yeah, it’s important when, when somebody entrusts you with their money as a limited partner. I mean, they wire you money. Never met in person before. We take that responsibility pretty seriously and providing that real time access to how things are going, whether it’s good good news or bad news, I think is important
Mat Zalk 35:37
Good stuff. Jacob Vanderslice is a Co-founder and Principal at VanWest Partners. VanWest Partners is a Denver based real estate investment company specializing the acquisition, development and management of self storage facilities. Under Jacob’s fundraising leadership, VanWest has strategically deployed over $375 million in capital and value add self storage facilities across the United States. Jacob, we appreciate you so much for being on the show today and telling us all about value add Self Storage deals. We hope that some of us can invest with you.
Jacob Vanderslice 36:06
Mat had a blast, and we’ll schedule another hour one of these days. Talk about airplanes.
Mat Zalk 36:11
Love it. Thank you.
Outro 36:16
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