EP 245: AJ Osborne on Diversifying with Self-Storage Investments for Modern Investors

[00:00:00] Hello, and thank you for joining us today on The Gentle Art of Crushing It Show, where we focus on learning and sharing with our listeners all there is to know about how to create success in our lives. This show stands on the shoulders of giants. Our mission is to empower and inspire our listeners to create the life of their dreams whilst having a blast in the process. Let's celebrate life together. Welcome to the show.

[00:00:26] All right, welcome back to The Gentle Art of Crushing It podcast. My name is Randy Smith and I'll be your host today. And I am really excited to have AJ Osborne with us. AJ is the CEO and founder of Cedar Creek Capital. He is the better looking of the four podcast co-host with the Drunk Real Estate Show, we'll say that. Two times bestselling author in the self storage industry, and he actually runs the largest educational platform on self storage in the world, self storage income.

[00:00:58] AJ, welcome to the show. Thanks for having me. I'm excited to be on. Awesome. Well, hey, let's jump in like we always do. Can you give me kind of your current assessment of where we're at in today's market cycle and how that might impact the passive investor?

[00:01:13] Yeah, so we are in the I think if we looked in the short term market cycle due to interest rates or anything else, we are now coming out of more of that tightening phase, but we haven't seen the end of it. So lots of times, especially during the tightening phase, the tightening happens, but you don't see the consequences of it until the easing happens. And so we are what I would think if you thought of a peak that we're kind of at the top 25 is the transitional period.

[00:01:41] So I set forth a outlook in 2021 where we I actually wrote a big thing called the self storage bubble. And I said self storage is in a bubble. And I broke down exactly why how what was going on. And commercial real estate in general, I had was in I talked about how inflation was going to come. And we had during in that we said, 2324, we're going to be hard years.

[00:02:04] And then 25. I think it was 22232420 end of 24 into 25 would be the transitionary period and we still hold to that. That doesn't mean it's going to be good necessarily, and some aspects, but it does mean we're transitioning as in we've hit a bottom. And now we're starting to go into the new part of the cycle. So we believe we're in a transitionary period into the new part of the cycle.

[00:02:31] Now, when you do not have a major contraction with tightening, that tends to drag out cycles. So the sharper that contraction, the worse it is, the more painful, the shorter it is. So if you don't have that, the pain lasts longer. And so that's generally what we've been seeing.

[00:02:52] And in fact, most of the pain and everything that we've been seeing has been wildly skewed. So if you look, and I've created a lot of data on this where we've actually shared it, but we have actually circumvented the contraction in its typical sense, because the tightening was offset by government spending.

[00:03:12] So government spending was offset setting those high interest rates that the Fed was doing. The Fed's actually hinted towards this. They're like, we're trying to here, but the government spending is astronomical. 50% of all new hires was government, right? It was the equivalent of 30% of the money supply every year that they were pumping it. You cannot contract the money supply when you're injecting 30%, right?

[00:03:38] So they've been at odds with each other. And that has kept it going where more people thought you would start lowering interest rates after a year, right? Or two, but we didn't have anything that came with it. Strong labor markets, right? Assets appreciation due to the influx of money. And we haven't seen a shrinking in that debt or excuse me, we haven't seen a shrinking in the money supply. All tightening is doing is trying to do that.

[00:04:02] But because of that, it has drug on. And so you feel the pain of it just longer as it takes for it to correct itself. It's like the hangover that just never goes away. That's correct. They're there for a very long time. So your premise is that we're at the beginning of a new cycle. Yes. Would you say, are you optimistic or are you pessimistic? Do you think we're going to see more of the same in the coming year or two?

[00:04:26] You will see more of the same, but I'm optimistic about it. So how I look at this is when the cycle starts, like take real estate, for example, interest rates go up. We saw transactions go down. We saw aggregate demand for lots of things fall. You saw occupancies lower than you see start to see rents soften, right? All that kind of stuff happens. The asset itself, the transaction on the market.

[00:04:50] So I look at everything as intrinsic and extrinsic value, meaning the extrinsic value is the price of the asset being sold on the market between buyers and sellers. The intrinsic is the functionality of revenue within that asset. You have occupancy, all that kind of stuff. So intrinsic value has fallen, but the market hasn't needed to trade. So we've had a stagnant period of a couple of years because prices have been affected, but we haven't seen results in them. What we're seeing, though, is the intrinsic part start to stabilize.

[00:05:19] Occupancies aren't falling. Rents aren't falling, but they're not also turning around, going up. But what we do see is the high rates or its effect on those assets. We believe in 25, you're going to start to see more discounted assets going to the market. We already have seen it. In 2023, I think I did one acquisition. That's it. Just one acquisition. 24, I think I did two. I may have not even done one in 23. I've already done four. We're going to close in the first month and a half of this year. Interesting.

[00:05:48] Because prices are reflecting value. That hasn't happened for two years. So we're starting to see that gap between bid and ask is starting to shrink now? Absolutely. The buyers are getting forced to the table because it's not going to change. So it's not changing, so they have to sell it. Is it the banks that are forcing the people to the table then, or is it just investors? I think it's banks and buyers. Buyers aren't going to. There's no expectation of market lift in 2025.

[00:06:18] So if you're selling a property, you can't embed any kind of market rents. We are underwriting basically at zero market rent increases for three years. So we don't even include it. So everything we get is off the price and what we can do within that asset intrinsically. After three years, we start to build in some market rent increases. And so when you do that, the sellers, right, they have to sell it and they have to have the effect of the extrinsic side, meaning interest rates that lowers their price because of the cost of debt.

[00:06:47] But then the intrinsic part where they go, it's not going to get better. You know, it may slightly or mildly, but nothing that's going to definitely offset the interest rates or anything else like that. So they're coming to the table and realizing if neither one of those things are going to change, prices aren't going to change. I need to sell. I've been holding out. We're now seeing them come to the table and agree. And then sellers like us, we can make those things work and we're starting to buy. We believe that will continue through 2025.

[00:07:14] So things that get better as in we're finally getting deals and assets are moving. Absolutely. Intrinsically, do I think occupancies are going up and rents are going to go up? Outside of regional specific type areas, everything aggregate hole? No, we do not expect that at all. But this is where we make all our money. So went through 2008, we did the same thing. We're buying pre, went through 2008 and we gobbled everything we could from 2009 to 15.

[00:07:42] And that's what, you know, we had a handful of assets about probably a million square feet prior than weeks. Or we now print maybe 600,000 square feet. We went to three plus million from 2011 to 18 or whatever it was. So this is where we make our money, right? So in that aspect, it's good. The aspect that I think cap rates are going to come down and occupancy and rents are going to go up in 25? No.

[00:08:10] We're transitioning, but it hasn't started. So you're buying on the premise that capture as many assets as you can now, stabilize and improve operations. And then when we do start to see the intrinsic value start to increase, you guys will build a ride back. Yep. And we're buying them to a point where we're happy with where they're at. As in, with our improvements, everything else, we're good. Like it works for us. So the market is an upside thing that we want everything else, but it is not necessary.

[00:08:39] It's a nice to have, but not part of the business plan, which yeah, very nice. Very nice. Are you interested in real estate investing, but don't know where to get started or think you don't have the time or money? Are you stuck in your W-2 because the golden handcuffs make it hard to walk away? If this sounds like you, check out impactequity.net and schedule some time to talk with the founder, Randy Smith. Randy went from massive income to leaving his W-2 through passive income, and he can help you do the same.

[00:09:09] www.impactequity.net. Okay. Well, let's, let's, if we can, and thank you for that. That is a very detailed response with a lot of information for the listeners to kind of soak in, but let's back up if we can a little bit and tell the AJ Osborne story, if you can, for those folks that are listening that may not know you, know this industry and how you got to where you are today. Can you give us just a quick blurb there? Yeah. So I, um, I was in insurance. My dad sold insurance. It got him out of poverty. I followed his footsteps.

[00:09:37] We were trying to offset our sales income. We had high income. It was taxed at 50%. And we needed depreciation and our income wasn't stable because it was sales. So we did consultation with group medical benefits, all that kind of stuff. So we started to buy assets. Um, we, well, we wanted to buy assets, but this was pre 2008. So I was looking at like homes and four plexus, things like that, which as we all know what was going on, I didn't understand it.

[00:10:07] I wasn't a real estate guy. And I'm like, these don't even make money. How's this thing's working? My dad bought a small storage facility in a small town with a partner. And he showed me, he's like, look at this thing. And I was like, that's awesome. Forget this. And then me and him started buying storage facilities after that. At the time, storage was like, not a thing. Nobody knew what it was like that. I didn't even think I'd been in one. Right. And so we were buying them at higher cap rates because people didn't want them very hard to get financing.

[00:10:36] Banks didn't want to lend to them. Um, so we did a lot of seller financing, things like that. Then we stopped completely by the end of two, by 2007, I think it was, we stopped buying completely. We didn't get back in until 2009 and we went unscathed. We had good debt and we were in good standing, everything else like that. So we were fine. That allowed us to buy up as we thought prices had obviously changed the value.

[00:11:05] So then we started to scale and went all in kind of on that. And I started building our companies from there, but we didn't ever take syndication. We didn't take monies. We didn't take anything else like that because I was, we were doing both. We had, we're running an insurance. I was running an insurance firm for one of the major national companies and they were paying us so good. I'd stay there, build my company. Right. But then I actually became paralyzed. So I became a quadriplegic out of the blue. I was hooked on life support.

[00:11:33] And then I was let go of my job while I was in the hospital, obviously. No kidding. Okay. Get out. Yeah. Then I got out and I had to relearn how to do everything. I had to relearn how to use my hands, talk all of it. So as I was coming back, I didn't have a job. All I did was self-storage. And so then I, out of my wheelchair, I started a couple other companies, including Cedar Creek. And that was our private equity firm, which I've been doing that now for eight years or whatnot. And that was all just private equity.

[00:12:03] We were going and doing the exact same thing we'd been doing before management operations. So today we own over 3 million square feet. We started converting buildings, bankruptcy for Kmarts, office buildings. I own two different tech companies in the space. Yep. I own the, obviously the educational part. We are fully integrated. So we do everything from building architects, but our bread and butter is acquisitions. And we kind of everything all the way through the whole, the whole system. Amazing. Amazing. Yeah.

[00:12:30] So I, I, I've been following you for six or seven years, I think. And that story that you share about your health concerns and your health challenges that you had. Can you go back to that moment for a little bit? Because one of the things we focus on in this, like I'm a guy who's been a victim of layoffs, no health issues like that, but layoffs. Yep. And the first time I got laid off, I was crushed. Didn't know what I was going to do. Wife was scared that we'd lose the house, all that other stuff.

[00:12:57] Second time I got laid off was after I, after I had actually found real estate and I had a cushion. So can you talk to how real estate played into that game and what that did for you and your family during that challenging time? Yeah, we, you know, I was perfectly healthy. This happened out of the blue. It was, it was not anything expected, anything else. My body just stopped working. I was 32 at the time and we just had our fourth child. And so it was overnight.

[00:13:27] I went to the hospital, didn't even say goodbye to people because something was wrong. And I was put into a coma shortly after that. I woke up and I was on life support and I was unable to speak. I had tubes coming out of the, I got trached. And so I couldn't speak nothing. And I, that's where I laid for months. I was fully aware, but I couldn't do anything because I was completely paralyzed. And I obviously lost my job and we didn't know that I would ever do well, anything again for a while.

[00:13:57] We didn't even know if I'd live. And then after that, we had no idea what kind of life I would be able to live. Um, and so when I was in the hospital, actually, it was, I went and moved into a rehab facility after months of being in an LTAC where they just kept me on life support. Then I moved into a rehab facility where they watched over me, but we tried to get back. And I remember it was Christmas and I'd gone into the hospital when it was warm out and I was watching the snowfall. And I wasn't worried about what my kids were going to get.

[00:14:27] I wasn't worried that we weren't going to have Christmas or that we were selling the house because we couldn't afford it. That my wife had to leave the kids to get a job while she had a paralyzed husband. Um, I didn't worry about any of that thing. I was just excited because they were going to give me a hospital assisted visit the next day to go home for the first time. And then they were going to bring me back. But that was like what they're going to do for Christmas. And I was like, I knew my wife was going to spoil the kids. And it was at that time that I realized this is, you know, this is important. It was life changing.

[00:14:54] What would have happened to me if we didn't have this, if we hadn't been doing this from there, that's when I decided to allow other people to invest alongside us. But then I also said, I'm going to teach and I want to, cause this is so important. And it's hard to, it's hard to describe the feeling that I had as a father, knowing that even in that condition, my, my family was taken care of. My kids were taken care of. I still could provide something for them. Right. That I wasn't a burden.

[00:15:22] And that was just so incredible for me. And it was that that helped me, I think, come back the way that I did. And it was that that helped my family and gave me options. And then from there we could grow. It was like the sky was the limit. And it's that kind of financial freedom. It didn't come quick. It was created out of a plan.

[00:15:45] But the fact that we started it ended up where we were is what we obviously weren't expecting that. That wasn't something, it was totally opposite of every plan we'd obviously ever had. Sure. Sure. But it saved us, saved my family financially. And it changed our lives. I love it. Yeah, no. And thank you for sharing that. I think it's, you know, I, I was in that same role where I was like top producing sales guy. Like you think you're untouchable.

[00:16:11] You're, you're, you know, like you are the guy that everybody looks to like nothing can possibly ever go wrong. And then with a flip of a switch, like everything can change. And even, even the, the high income folks that generally are listening to this podcast, like they think that it can't happen to them. But we've seen it time after time, after time, after time. And your story is just a great example. And I think that just resonates so well. And most people, certainly. Yeah.

[00:16:37] What you're talking about, like, I think most people need to realize that what happened to me was a very condensed. Most people, especially in sales, it's a slower drawn out process that is due to either you, your company, the market, like your product just doesn't get what it used to get. Anything else. Even the industry that I'm in today, nothing like it used to be. You can't make money in the industry that I was in like you used to be able to. It doesn't exist. So it was actually going to end up no matter what. I didn't see it and I don't think people do see it, but it always ends.

[00:17:07] That is the one thing that is guaranteed. Your ability to earn a wage will end at some point. And so, but we don't think of it like that. Well, I want to come back to that because that is something we really focus on this show is this idea of passive income. And I know that you, that's a big part of your business as well, but I'd like if we can dig into self-storage, like when your dad came to you and he showed you this asset, like how did that, how did the numbers on the page look different than what you were seeing with single family? What caught your attention? Cashflow.

[00:17:36] It actually made money. We had margin. Okay. It was like you bought it in day one. We actually had money that it spit off and it's margins weren't small. And so there's, I tell everybody this, I've started speaking about this in 2010, 11 or whatever it was. And I wrote books on this self-storage isn't a real estate asset. It's a business. And that's what makes it amazing because we have operational efficiencies that we can come in and we can actually change that underlying revenue and increase that income.

[00:18:05] Therefore forcing the valuation in a way that you can't, we do dynamic pricing, right? It's, we, we can do all of this thing with tech advertising, multiple, as I call them products, which are units because they serve different customers. There's a lot of things that you can do within it. So there was a lot of control over it and we had large margins with low CapEx and low operational cost. So that also made it an incredibly safe asset.

[00:18:32] And it was, I love that because I actually didn't like real estate. The reason I didn't like it, it didn't make sense to me. I'm putting all this money in. I just sit there and then it pays me maybe a little. Then over time, I'm going to make more money. I actually hated that concept. Totally. So storage for me was I could have my cake and eat it too. I can get that. All the things I loved about real estate. I get the depreciation. I get everything else, but I also can have an effect on this revenue.

[00:18:59] And so when we got into it, when we started looking at it, that's what we liked about it. It was much similar to what I knew in business, right? And I could create a plan around it. And so I, I liked that a lot. And that has been the whole source of everything we've done. We built a business. We didn't just buy assets, right? And that's what made us successful. I love it. So, and this asset class is much less dependent on people. You don't have leasing agents. Nobody's living in it. You don't have, yeah. So it's-

[00:19:28] Kick them out. So what's a traditional facility look like? Is it, you know, 50, 100, 200 units? Like what are the manpower hours? Like what does it look like? Yeah. Generally, I build it out into three different groups. You have small facilities, which we measure as square footage. So under 50,000 square feet. The reason why we do square footage is because doors don't make sense because five by fives versus a 10 by 20. You can have 300 doors versus 50 and it could actually be the exact same square footage, right?

[00:19:56] So we do a square footage. 50,000 net rentable square feet to 100,000 net rentable square feet is midsize. Then 100 plus. 100,000 net rentable square feet plus is large. 50,000 below operationally is really not dedicated to manpower. It needs to be automated because the revenue can't support manpower. 50 to 100 is generally a mix between.

[00:20:23] Then 100 plus is where we get into, you have all of the marketing, all the technology, everything else. But generally speaking, you have people there. We look at our large facilities, they have 1,200 units. So there's a lot going on. And the smaller ones, it's much more passive on that sense. It's operationally heavy. So when we say people look at storage and they're like, oh, it's, you know, you don't do anything.

[00:20:50] You really don't with people, but you do operationally. Why? Because it is a competitive thing. So we have to market. We have to do like, we have revenue management. You have marketing. We have to attract customers. You have the sales process, right? It's month to month leases. So our turnover is high. We have seasonality. We're moving. And if you're not on top of that, right? That's not good. And so you actually have to do things like not only dynamic pricing and the price of the unit, but once they get in, we have revenue management that we have to work on moving those prices around.

[00:21:20] So there's operationally, there's more than it's not like you get somebody in, you put them in a lease and then you're good for three years, but then you have to deal with that person calling. We don't have that. Sure. If you look at it either way. It sounds like it probably gives you the ability to centralize a lot of those efforts as well versus having a lot of them in on site. Okay.

[00:21:46] I got whatever here at our corporate office, we got 60 employees and a lot of those efforts are centralized. We have average probably one and a half per location. We have some locations that have none, and those are strong across 10 different states. Got it. Okay. Now, I know when I first started looking at this space, which was probably five years ago, I think when I placed my first LP investment, there was this talk about recession resistant and it was going to fare much better than multifamily. Yeah.

[00:22:15] I didn't experience that. So, yeah. No, because it's not true. Okay. I, I, that actually drove me crazy. And I was, I've been talking about this for a long time. People were like, oh, it's recession proof and it's recession resistant. Yeah. That, that was maddening because it showed a complete lack of understanding. So what people do and how they attribute that to is in 2008, it is, and still is by the way, the lowest defaulting commercial real estate asset out there in a default sense. Yes, it is. You're talking about 1%.

[00:22:46] So it's, it's, I think multifamily, which is the next safest is double self-storage. Now the reason, but when we say that you have to be careful. Although it's recession resistant because of the default, that does not mean that the revenue stays the same. Meaning in 2008, we saw revenues drop in half. We just have big margins, low debt, low operational costs.

[00:23:12] So you can survive, but that doesn't mean you're making money or that you're benefited that at all. And so what we have is in this recession, by the way, too, which I call commercial real estate, we're going through a recession, right? It actually hit storage harder. Why? Because the housing market stagnated. And I wrote about this in 2021. I called it the self-storage bubble. And I said, we're going to have a self-storage bubble. It's going to happen. This is why. And people said no, because it does good even in downturns.

[00:23:39] And I'm like, that whole thesis is predicated on the fact that the housing market remains up. At that time, 98% of all houses had a 3% mortgage rate locked in for 30 years with equity that was twice the home. Nobody was losing their house and it wasn't going to happen. So I'm like, it's not 2008 just because we have a recession, right? So different recessions hit different asset classes differently. And this one hit storage harder because we were now moving into adult storage.

[00:24:09] Prior to 2008, storage was in its infancy. 2008 to 2019, it was an adolescent. We have gone through the last three, four years, this massive maturing of an asset class. That's a consolidation. 50% of the industry is consolidated. When I got into it, less than 10% were institutionalized. Now it's basically 50%. We have a matured asset class. We have financing. We have competition, right? And when we have recessions, it's going to affect things differently when you have more

[00:24:39] and you have aggressiveness. So what we saw was in 2000, 2004, we saw a big downturn in rates, like huge. So people were competitive. And so they started dropping rates to get customers. And we saw major contraction in rates. So it's not when people say it's recession proof or recession resistant. Like, yeah, but that doesn't mean you make money. That's very, very different. Sure. Sure.

[00:25:04] So now I'm curious, we're seeing in the multifamily space, this huge deliveries uptick over the last couple of years. Hopefully we're through that. Everything I'm seeing says that that's going to slow down over the next couple of years. Did you guys see the same huge trend in increased deliveries in the self-storage space as well? We're hitting the final year. So this year is the final output of the lagging deliveries.

[00:25:29] We have, we're scheduled from 25 to 2030, a 40% drop in development. So 26, immediately we have a huge drop in what's coming out. 27, 28, it just blub, blub, blub, craters. So 25 is the peak. And that's why I talked about earlier, we're at the peak of a development cycle. But the first part of developments are being canceled everywhere. But you obviously have developments that started three years prior. They're coming online. So we're seeing the tail end of that.

[00:25:57] That will help soften the market. Okay. But we are leaving it. Nobody's putting out developments. No, no banks are taking on developments. And that started a year ago. It was like we, to find, and we were, we started doing developments when that happened for obvious reasons, right? I'm a contrarian, but to find the debt in those markets, entire banks were like, we don't even look at it because we're risk off. So money's not allocated. Developers aren't doing it because they can't sell them at CO.

[00:26:25] No, there's no CO deals trading at low cap rates. That's all gone. So that development cycle is, it's, it's shutting off. But this is the last year of deliverables. So will you see, I would imagine that development and self-storage is much quicker timeframe than multifamily or some of the other ones. And so when it turns back on, it will likely come back on quicker. I'm guessing. It should. The thing that we have is the approval process.

[00:26:50] So lots of times we have cities that don't like storage, but in essence, it is. I like for me to get a storage online in a high demand area, it will take me longer to get approvals by two X than it will take me to build it. So it's essentially just, you clear the land, you put cement and you throw up some metal buildings and throw in some technology. Right. Okay. Yep. Yeah. So I, I'm based here in Phoenix. I believe you actually have done some development and done some projects here in Phoenix. Next two weeks, Surprise, Arizona.

[00:27:20] It'll be huge one. A hundred, 200,000 square feet net rentable right off the exit on the 303 and Cactus in Surprise, Arizona. It's about four miles from my house. So yes, I will drive that property to check it out as part of my research for this podcast. Oh, you did? Fantastic. So no, you got to be at it. We're going to have it and I'll give you a tour. Okay. Sounds good. I'll be there. Very good. All right. Well, let's, so we talked a little bit about deliveries, but let's look at this if we can

[00:27:49] through the lens of the passive investor. Passive investor has likely got their butt kicked over the last couple of years if they've been in this space because multifamily got crushed. Everybody got hurt, right? Everybody got crushed. Of my 25 LPN positions, over half of them have paused distributions and I've had some capital calls. Is there a good news? Like, is there something exciting that's coming? Should we be more optimistic about the future as passive investors? How do you see self-storage in that? This is the problem. Okay.

[00:28:17] So even like our deals, we've had deals that were in markets where we saw a 60% rate drop. You just pause distributions, right? Like it's just, nope, we're not doing it. You shouldn't be. If you're a passive investor too, you should be looking at it because what we saw was especially more novice syndicators. They didn't want to pause distributions because they didn't want to get their investors mad at them. But what happened is they thought it would turn around or something and it didn't. Then they're doing capital calls.

[00:28:45] So pausing distributions is totally different than doing capital calls or going under, right? And so that is a part of it that's happened, I think, across the board to everybody. And that burns people though. And it scares them because it should, right? And if you've had a capital call. But the thing is when that's happening, it also does something else. The deals that you're now you can get into are on sell.

[00:29:09] The deals that we're buying are not comparable to the deals that you were buying three, four years ago. The yield on cost you're talking about, the only thing that we can equivalent the acquisition of is when we were buying in 2015. The yield on cost is back to 2016 and 15 in self-storage. And that was still before the hype of self-storage even.

[00:29:36] So the good thing that they should be looking forward is we've really, we're clearing out. So we've seen a stabilized in rates, things like that, occupancy. Cap rates haven't been demolished. There's still demand. So assets will trade, right? There's still, but we're going to see improvement in the next two years of operations, turn those kinds of stuff around. That's great. But you also now have opportunities. So it's that once you're getting burned in an investment that you want, you want to run, you want it to be over done.

[00:30:06] But actually that is the signal that the opportunity to buy is great. And you, to be an investor when the stock market's down and to sell everything, then it goes up and to buy everything. It's not what you're trying to do, right? Exactly. Yeah. It's hard, but it's actually true. So we actually want to buy more in 25 and 26 than I did the previous five years combined. I mean, if we, the deals we're getting, if we can, we haven't bought hardly anything in the last two years because we couldn't get the deals.

[00:30:35] They're now hitting the market. We're buying, we're getting incredible yield. And I want to just, I'll buy everything that I can for the next two years. It's that you can't change the price you buy. Interest rates will change everybody, but the price that you pay will not. So now what I'm hearing from everybody in the marketplace, cause I'm, I'm a capital raiser and allocator bringing in capital deals. Everybody's having a hard time raising capital because passive investors are burned. Are you experiencing the same thing or?

[00:31:04] So we're not raising at the amounts we want to or need to, but as of right now, we're funding everything. We're experienced. You know, we have, I mean, in the industry, we're in the top. So we're in the top 50 owners in the industry. So we've got a good name, everything else like that, but it has been hard. So last year was tough. Last year was really, really hard this year.

[00:31:29] As of now, we have not experienced any problems in raising, but with that said, though, we're just starting, we're coming in and we've risen for a few deals. I expect as time goes on is we'll get more difficult raising sub 20 million, 15, 20 million. I think we can do fine. But once we go past that, we've gone beyond tapping our base. We've gone beyond tapping that. That's where it's going to start to get tough. And we believe that it'll continue to be through 2025.

[00:31:55] We think this will be a problem for syndicators because the demand is gone right when it should be. But the demand was highest in 2019, 2020 and 21. Now it's the lowest. That's the opposite of how it should be, but that's how it is. And so are you guys, what are you guys doing to prepare? Obviously you're coming on podcast, but what kinds of things are you guys doing to prepare for the capital needs that you'll have? Are you looking at different channels?

[00:32:26] Yeah. I've never looked at family offices before ever. Okay. Okay. And a lot of it was due to a control issue where I looked at it and it didn't make any sense to me. I'm like, I've been in this industry for 20 years. I started the largest co-founder of the largest association in the industry. We own the tech, everything else. And you're going to have control over how it's operated. I'm like, that didn't, I am like, I don't, I can't do that. That makes sense. Um, and two, also one of the main points of me starting the company, cause I didn't need

[00:32:53] to, we had 150 million assets before I ever asked anyone for a dime. So it was meant as I came out of the hospital as a way to let normal people invest directly into the economy. So we really wanted to do that. Now, the problem with that is you get to a point where interest rates go up. People get scared. They don't want to invest. You can't make people invest. So we've actually started to look at family offices and everything, and that's a change, but we see a lot of what we're doing is education.

[00:33:21] And I give, I mean, I have the, in the industry, the two bestselling books, the podcast or anything else. I want free information out there. I want operators to be better. And I want people to understand and know. And as I do that, and as I show people, here's where we win, here's where we fail. Here's what we've done good and bad at, right? Everything else, that transparency that tends to attract people. I've spent millions investing into the business of storage, not assets. The actual business, tech, infrastructure.

[00:33:50] We've created new software systems designed to do all sorts of millions of dollars into that. That is really benefiting us today. And that puts us kind of ahead and in hard times. So reinvesting into ourselves and what we do in that focused area, that is probably the main thing that we can do that when we have investors come that it's like, all right, you guys are the experts and know what you're doing. I love it. I love it. Well, yeah, thank you for digging into it.

[00:34:17] This is an asset class that caught my interest five or six years ago. When pause distributions came, I kind of put the brakes on it. And I'm becoming more and more interested in this. And I think it's something that I need to continue educating this audience and through folks like yourself and the great resources you put out there. That is fantastic. What we have with storage, and everybody should know this. After two or by 2022, once the fall interest rates started to come up, you have to realize

[00:34:44] that 80% of all syndicators had come into this industry after 2018. To give you any idea, after 2018, we saw occupancies at 96% every single year. Never in the history of storage had occupancies even gotten to above 90% ever. And we went to 2018, 19, 20, and into 21 at 96% occupants. And that was 80% of all new syndicators. They'd never been through a downturn, ever.

[00:35:13] Not only never been through a downturn, they'd only been in a bubble. And that is obviously not good. And I think that people need to understand if you were in that position, that's if you lost a deal or had a deal, that can't be represented as reality of the industry. Well, AJ, as always, here we are over my time period that I promised you we would cut this off. So if you do have just a couple of minutes more, I do have kind of my final five that I'd like to ask everybody before we wrap up. Okay.

[00:35:41] Well, so for the new or newer passive investor, and let's say the new or newer self-storage investor, what are the best or what is a good educational resource that they can go to to learn this space and to learn more about what it is you guys are doing? So we have our podcast, which I mean, I would listen to that because the industry is changing all the time. You're hearing from operators. We have everything out for free. It's in depth. We go through how this industry works, what we're seeing, and where opportunities are and

[00:36:11] aren't because there are opportunities and some of the best we've seen, but you also have to know how to find them and where they are. So we go through that and that's weekly. Every week we do a full download. We also, there are conferences we put on and there's like not profit. We don't make money on these things. It's like you go to these conferences and it's just line up. We hold the largest private conference in the industry. And we have that in the fall, those free resources, ISS and SSA.

[00:36:38] These are associations go to their sites, go to the things. They're huge. They're national. All of those resources are good. The two books that I have there like one-on-one. The first book is like one-on-one. If you want to know about storage, read it. It tells you everything gets in. And if you really want to get in depth, book two is for 350 pages of everything to do in self-storage. So you could really nerd out and I have those priced at whatever Amazon takes to transact.

[00:37:06] So it's like, they make me put it at that price or in that, that's what it is. I mean that 350 books of textbook, I should be turning through, but I just whatever Amazon so people can get it. I think it's really important. The thing that destroys our industry is bad operators. That's it. So if we had good operators, good developers, and everybody understood value, we would have price stability and consistent rent raises and value stability. I want everyone in storage to be successful because if they fail, I do.

[00:37:36] So it's a big deal for me. No, I agree. I love, I mean, it's the abundance mentality, right? You guys aren't competing with one another. No. You're educating the world to be better investors, better operators. I think it's fantastic. Yeah, my neighbor across the street says I'm 50% occupied. That's not good for me. Exactly. Exactly. Very good. All right. So what are you listening to now or what books and podcasts are you interested in right now? So I've been at the all in podcast.

[00:38:02] If you haven't listened to that, I absolutely suggested during this time, they're very in track with what's going on in the country. They're very in tune because the people that are on the podcast are also working with the government, everything else. This is all our friends and people. It's a fantastic way to learn about the United States relations, what's happening that is bringing a realistic view. I do not like political scare tactics, things like that, but I do like to understand we are going through a lot of changes.

[00:38:32] So during those changes, it's important to understand what they mean and what the investing structure and landscape and all that kind of stuff means. So I think that's a great one to do that. That is not politically driven. Yeah, no, it's, it is a must listen. Every single week that it comes out. And the last couple of months have been really interesting to get their perspective on everything that's going on. So yeah, absolutely. Well, good. Can you share maybe a due diligence question that past investors in the space should be asking that is unique to self-storage that they might not know?

[00:39:02] Yeah. So there are a few with self-storage that I find really interesting as far as due diligence goes. The one thing that you should ask is there a single tenant that owns more than two spaces or three spaces? The only reason why is I've seen things where the owner actually owned like 20 spaces and that equaled to be like 12% of the occupancy. And then once he sold it, you left. Interesting. Okay. Yeah.

[00:39:29] It's, it has to do with one of the good things about storage is there's not a concentration of risk. So if you're buying a storage and if you're buying a small facility that has 80, 90 units, but then you have one business that owns 20 of them and is using them and then leaves, right? That's a higher concentration of risk. You generally don't, wouldn't have that problem and other asset classes at all. So there'd just be no reason to ever ask it. Right. Yeah, no, that's, that is a good one. I would never even, I would have never even thought of that. AJ, thank you for, for sharing that. People don't rent 20 different apartment units. Oh, they don't. Right. Okay.

[00:39:59] Very good. All right. Let's hear a couple of fun ones here. So what is a recent bucket list item you've checked off your list or one you hope to? So a recent bucket item. Um, oh man, there's been a few. My son wanted to go on a hunting trip. So I took my two sons hunting. I'm not even like a big hunter or anything. And so that was awesome. Um, I, I, I did that. Uh, two years ago I bought dinosaur. I love dinosaurs, been obsessed with dinosaurs. So I bought Ernie.

[00:40:27] I was going to ask, but yeah, that you don't see that in podcast screens all that often. So that's interesting. Yep. So he's a dinosaur. So yeah, those are a couple. Very good. All right. And then our final question we ask everybody, get a hundred grand to place today and you couldn't put it in your own deal. Where would you put it? That's a really good one. If I couldn't put it in my own deals today, I would be looking for in the markets, things that are extraordinarily sensitive to interest rates. High interest rates will go away.

[00:40:57] Now. I don't think they'll ever go back down to what they were, but the landscape of adjustment of cost of capital causes some valuation issues that may not be predicated on the underlying business. So I am looking for valuations that are hit due to interest rates, but the underlying business is sound because as that grows, it will not be captured in value. And once it rebounds, it'll be a great windfall. So that's what I'm looking. Yeah. Yeah.

[00:41:24] Different answer than anything I've heard, but I wouldn't expect anything else from AJ. So yeah. Got it. Very good. Well, this is, this has been a lot of fun, AJ. Thank you so much for, for being on the show. Of course, we'll put your contact information and how to find a Cedar Creek, of course, in the show notes, but thank you so much for being on the show. This has been a lot of fun. Thanks for having me. I appreciate it. Awesome. To the audience is always, we encourage you to continue that education journey in the passive investment space, but more important than just the education, make the decision to make that first passive investment.

[00:41:53] We are convinced that once you do, you'll be so glad that you did and just wish that you'd started sooner. So be sure to join us again next Thursday for another great episode. And thank you again for joining us today. Well, there you have it, ladies and gentlemen, another episode of the gentle art of crushing it. It was an amazing episode. We know we sure learned a lot and we hope you did as well. We want to take a second and thank you so much for viewing or listening to this episode.

[00:42:18] And please just know that we only ask for one favor, and that is to make this life magnificent. Thank you and have a wonderful day.