WIN Ep167. Buy Smart, Add Value, and Scale Fast with Self Storage with Joe Downs

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Trent Werner: Welcome back to another episode of the deal deep dive segment on the West Side Investors Network podcast. I'm your host, Trent Warner. In this segment, our featured guests will share their unique stories on a specific deal they've invested in. We will dive deep into finding the deal, financing the deal, writing an offer, and the due diligence. Do us a solid and smash that subscribe button, leave us a rating, and share this episode.

And now let's dive deep. Welcome back to the Win Podcast. I'm your host, Trent Werner. On today's episode, we are joined by Joe Downs, cofounder of the Belrose Group. Joe's gonna share his entrepreneurial career path and his business ventures that succeeded and failed before he ultimately landed in starting the Bellrose Group that focuses on self storage.

Joe's gonna share about his current assets, the normal self storage space, also a newer niche in the self storage space that revolves around storage focused on pros and contractors and businesses, a b to b storage niche, if you wanna say. Now let's welcome Joe Downs. Welcome to the Win Podcast, Joe Downs. Thank you so much for joining us today, Joe.

Joe Downs: Trent, so glad to be here. This is awesome. Thank you.

Trent Werner: For for people who don't know who Joe Downs is, who are you, and what company did you cofound?

Joe Downs: Yeah. So I'm nobody special. Let's start with that. I grew up and live in the Philadelphia Suburbs and I've pretty much been here my whole life. That's why I don't think I'm all that interesting or all that special.

But we have done some unique and interesting things over the course of years. Business career evolved from being a financial advisor to really learning and figuring out at some point that I was an entrepreneur trapped in a more conforming lifestyle and working. I know that's because I always had like two or three jobs. The second one always being bartending which started you know right after college and actually in high school I was DJing. I was always doing something else to to make money in it.

And I tell you this because I bartended all through my twenties, my second Tired of being a of every male right? If the bar, if the opportunity to own a bar is in front of you, you have to take it. I think it's in our DNA, think it's a requirement. So I took that leap of faith. The bar part was great, the restaurant not too much.

I didn't know what I was doing, I got my my proverbial ass handed to me. So and that's a lesson I lean back on all the time. So I lost probably a hundred grand in that venture, but it was an incredible learning experience. Something I always say, the winning or learning, right? And that was an incredible experience to learn.

Got through it. Went through that kind of reinvention process. And you know what? You never know when one door closes another one opens if you just you know keep your head down and keep keep working for it. I said I'm from Philly, so I'm gonna give you a Rocky quote.

Right? And and I'm probably gonna butcher it, but I think it was in Rocky six where you know he says it's not about how hard you get knocked down, it's about it's about getting back up. Right? So that was kind of that moment for me as I got knocked down pretty hard and I think what does he say? That's how winning is done or whatever you know.

I had to get a little filly in there. So I took a job because I was broke. Took a job with a radio station selling radio air, whatever. Of my client always wanted to be in real estate, and I still wasn't in my early thirties at this point. And took a job selling radio as I said.

Two clients come along of other clients. Two real estate based clients come along. One was teaching was a mentorship. Teaching people how to buy rehab and flip or rent single family homes. They they happen to become my client.

And so I just there was there was no excuses anymore. This is my foray into real estate. I started doing that. I was broke, so I started wholesaling first. Right?

And then another client came along high end condo. They advertised on rate. It was a top rated station. It was a good audience for them. And the guy that was running that project, I became friendly with him.

And he introduced me to his friend who's had a ten thirty one exchange syndication business and they needed a sales guy and so here I was, know, selling radio, you can sell that, you can sell ten thirty one exchanges. So I learned I didn't know anything about commercial real estate. At the time I barely knew enough to be dangerous in residential real estate. But I learned that business. I raised I ended up raising a whole bunch of money for was mostly multifamily and office syndications, a little bit of hotel.

And then this was kind of the beginning of this was my second iteration of reinventing myself. So I was either born to be an entrepreneur or I had no choice one or the other. But so in 02/2008 if you look a little younger but you probably remember or heard the stories about you know that what happened with the real estate market obviously in the debt markets and they all crashed in the 08/09/2010 was not a good time for everybody. So I had to reinvent again. Met a guy who ended up becoming my partner at a tax lien seminar because I was trying to find the next thing.

And we didn't go into that business, but we started talking about and about this he had bought a new guys who were selling distressed debt and it turned out to be second mortgages, residential second mortgages. But generally we're did it out. I'm one of those people. I don't doesn't mean I'm a coward. It's it just means I'm what I mean by that is when people are constantly telling you no no no.

I'm curious. Why? What what haven't you figured out? So that's what mean by that. I'm not not necessarily running into burning buildings but see it out.

And it wasn't that hard and it's you know a lesson in life. Matters who you surround yourself with right? Because there's always those people that tell you this is stupid. You'll lose your money. You don't hear what you're doing.

And sometimes they're people that Shenover. And so anyway, we figured that business out and just started to grow it and you know eventually found a seat at the table. Fifteen years, we've grown that to one of the largest distressed second mortgage buyers in the country, which is to say we're like the world's world's biggest we're we are a big fish in the world's smallest pond is a better way to say it. So I say that humbly. There's really, you know, nothing special about about that little niche, but it's an amazing niche.

But even that niche had its cycles. So there's a period of a couple years we couldn't buy it because the CFPB put these regulations in place that made it it just not worth it for the banks to sell them. So here we are invent reinventing again and that's how I found storage. So I tried to condense it for you there quickly, but people always ask me, how'd you get into storage? I'm like, I didn't know the first thing about storage until I got literally.

And the email I got in my inbox was probably 2016 or '17, somewhere in there. And it was an email that said, real estate without toilets, tenants, and trash. And oddly enough this morning I got another email from a completely different guy and the headline was real estate without tenants, toilets, and trash. And I chuckled because that's the email that got me into storage. By the way, that was that was an email where the guy was teaching people how to buy distressed debt or you know running a mastermind for something.

But it is it was funny that I saw this morning. But so I opened this email because I'm curious. And and the subject line I learned later is that's it was it's BS. Like, tenants are critical to storage. Yeah.

Sometimes they leave trash, by the way. But and frankly, if we're being honest, they're really storing trash. Right? There's treasure to them, and it's trash to us. And, but there's no toilets.

Right? So that part was true. What struck me as interesting in the email and really got the juices flowing was in the body of the email it talked about how many storage facilities or percentage of storage facilities are owned by the REITs, the institutional guys versus the mom and pop. And I was floored at the number. And that and the reason it got me my juices flowing is because being in the second mortgage space, it was like the wild wild west.

Right? There was almost no regulations in place. It was even just how these things are traded in the second and third tertiary markets. And and we we cleaned it up which is why we were part of cleaning it up which is why we kind of rose to the top in that space. And I'm looking at this these numbers and find and if I'm believing what I'm reading, 80% of storage facilities at the time.

Now it's probably closer to 70% because there's been a lot of a lot of sunlight on storage. Everybody was talking about storage now. But at the time, it was 80% of these facilities were owned by mom and pop owners. And that to me just it it said it said to me, holy cow. There is dislocation.

There is fragmented information out there. We've got most of this industry not operating efficiently like the REITs. That spells opportunity. And that's what I saw in the second mortgage space too. That spelled opportunity to me or at least it it looked like there was a lot of smoke there and where there's smoke there's fire typically.

And we were right. So, we ended up the email came from a guy named Scott Myers who was the first guy to start teaching this business. We ended up I'm going to his I bought his at home course first, ended up going to his academy. We paid him to be mentors to mentor us. And it was over five years ago or just about five years ago, and we're closing on our twentieth facility next week in our two weeks.

And I I couldn't tell you when I was sitting in his class for the first time, I was like a deer in headlights with storage. Again, I know anything about it. I've never ran any unit, but I'm learning and I'm I'm super excited. But I'm also like, can this even be done? Can I even buy a facility?

And now I teach as academy. I mentor the students and I tell them, I can't believe I'm standing here talking to you about to close on my nineteenth or twentieth or wherever I am at the time facility because I remember vividly sitting in your seats going, can this even be done? You know? So that that I hope that wasn't too long, but that was my that's how I got to where I am now.

Trent Werner: Well, your story is is quite a story about resilience, not giving up. And and like you said, it's not about how hard you hit. It's about hard you can get hit and get back down or get back up, whatever the quote is.

Joe Downs: Put you the better than I did. Yeah.

Trent Werner: But so, I mean, lot of a lot of success comes after failure. Right? And and, you know, you tried I'm the same way. I like I I don't it's called shiny object syndrome, right, where you're always chasing the the new niche or whatever you're chasing until you really feel connected. And and you're gonna give it your all no matter what.

Right? Like, no matter what you're chasing, you're gonna go in a %. But how did, I guess, how did you know storage was going to be the the one that you were like, k. This is burning all the ships. It's me in storage now.

How did you how did you finally figure that out after experiencing so many different industries?

Joe Downs: That's a good question the way you phrased it. Because we we had other ships in play. Mhmm. We we still had our distressed debt business, which was on life support. Well, actually, no.

It just it had kicked back into to gear right when we started storage. But we have one guy that kind of runs it for us. There's not a ton that I do on a day to day with distressed debt. And that experience of not buying debt for three years told me this was more of a hobby than it is a business because I can't control it. Right?

And we and we try to, but it was it was just really it was out of our control at the at the end of the day. So I was out to to find a business. Real estate was it. Multifamily. I had raised a lot of money for multifamily as as ten thirty one syndications, but I also knew that was a very crowded space.

We weren't in it, and it didn't seem like the type of space where I could really get in and and find the same atmosphere that I found in second mortgages. Meaning it was almost like a commodity to me. And I'm not saying you can't start in it. And by the way, I love multifamily. I'm I'm a passive investor in it.

I just for what I do and how I do it, I didn't I couldn't see how I could create value. Right? And I saw that in storage because of the 80% of mom and pop. That that number, that statistic. I just knew in my heart and I was confirmed when I went to Scott Myers Academy that they don't operate efficiently and there is a tremendous upside and there is the ability to create a lot of value.

But it took us still like six months to nine months to really appreciate that because it was kinda storage was the new shiny object that I was believing in and I was starting to to put my energy and resources behind. But I still had a we along the way, we had created a hard money lending company. We were part of a title company. We were we sold the distressed debt. We were still flipping some houses that we you know, because we were doing whatever we could in real estate for a couple years there to to create some cash and see which direction we were gonna head.

And so when you say when did you really commit? It was when we really I think when we found our first deal and we we started to live it and experience it and they saw the numbers and it was all coming to life as as real, that's when I looked turned around and turned and learned left and right and said, what are we doing? We need to put all of our efforts behind this. And and once we did that, it started it started to take off.

Trent Werner: That makes sense. And when you're when you're looking at these deals, especially if they're owned by mom and pop, because I'm assuming that's who you're buying a lot of your deals from, if I had to guess. How are you going and looking at these deals? And aside from just raising raising rental rates on on units, how are you creating more value in in your deals that you're buying?

Joe Downs: Well, rates is is part of it, but not not all that's not the whole story. So the first thing we do is we look at the market. We want to understand is this a market we want to be in? Is it a growing market, a declining market? What does the median household incomes look like?

And by the way, when I say market, a lot of people will ask us, hey, is the Trent, I didn't even ask you. Where do you live?

Trent Werner: Portland, Oregon.

Joe Downs: Portland. They'll say, is Portland a great market for storage? Or I'll get, oh, there's a lot of storage popping up in Portland. It must be must be oversaturated. Right?

So I don't know. Portland is a huge market. Storage is a one, three, and five mile market. Maybe ten minute drive. Well, definitely up to ten minute drive time, fifteen, twenty if you get really rural.

Right? But within Portland itself, I could find 10 great markets and 10 terrible markets. Right? And there's probably another 30 markets in the Greater Portland area. Right?

Depending on how you how we whack them up and we look at our radius. So our radii, I guess. But it's it's one of those things where you have to look at the market. When I say market, I mean one, three, and five miles in general. Right?

They're mostly that. For us to determine, is this where I wanna be five years from now owning and operating a storage facility? And if not, we move on. Right? And then from and by the way, there, if I do wanna be there, it's the demographic and competitive analysis that we do on that one, three, and five mile market that dictates and determines the assumptions we're gonna make when we're looking at the facility when we're we're creating a performer that says, yes, we can create value here or not.

Right? So what does that value look like when we can create it? It's it's certainly raising rates, but it might also be raising occupancy so we can raise rates. Right? Increasing occupancy and raising rates.

So how how are we doing that? Well, if we've determined we can be done in that market, it's a lot of times it's coming in and a lot of a lot of times people think we're we're you know, there's economies of scale and we're cutting slashing expenses. There are economies of scale, but we're not usually cutting expenses. We're usually increasing them. Because what we find with mom and pop owners is they're typically let's talk about how old they are.

They're typically over 65. I'd say the average age of the seller that we're buying from is 70. I mean, I haven't asked them specifically, but just anecdotally, would tell you they're in the seventies typically. Yeah. Which means in large part, they're not very up to date on technology.

What does that mean? Well, they might have a website. They they might have a website, but it also might be from the Myspace error. Right? So meaning it's it's just the stack there's it's not a functional website.

The best way to describe it is when when we're done adding value, you can find the facility from your from your cell phone. You can rent a unit on your cell phone. You can pay for that unit on your cell phone. We will tag on or tag on tenant insurance or protection. Same thing same product, different called different things from your cell phone.

Right? And in the future, because storage is just embracing technology across the board, in the future as they're building these now, you're not even there aren't even keypads outside them for the most. I mean, people might build them with them, but the the really advanced ones, it's all Bluetooth now. So everything's done for your cell phone. When we find a storage facility that is what I would say mom and pop manage, that doesn't mean it's not a beautiful looking facility.

A lot of them take really good care physically of the facility, although that although there is a value add component there for a lot of them too. But it's the technology. It's the marketing. It's the management. What are they using software?

Are they not using software? And then we get into how are they how do they determine the price? So you talked about raising rates. Sure. We we always wanna be able to raise rates if you can do it in that environment.

Right? But even then, a lot of a lot of folks who get into the business or there's even people out there teaching the business will say, oh, just raise rates across the board. Well, is that smart? You know, you got different unit sizes. And what so we look at each facility and say, well, we have five by tens, 10 by tens, 10 by fifteens, 15 by twenties.

I'm not trying to confuse your your listeners here. I'm just trying to illustrate there are different unit sizes and there are different unit sizes in the market. Right? Or each unit size has a competitor in the market. So Trent, you're in multifamily.

If you have an apartment building or multifamily complex with that's mostly two bedroom apartments, but you have a three bedroom and a one bedroom, you're not raising the rates on the on the one, two, and three bedrooms, I'm assuming, the same every time because it depends on what the occupancy of the market is for two bedrooms and three bedrooms and one one bedrooms. It might might be different. Mhmm. So that's where we and and there's another way there's I'm leading you towards there's a dynamic pricing feature to this as well. And I don't know if you know this.

The way REITs manage, the institutions manage, you go on a let's let's pick on Public or Extra Space or CubeSmart, any of those. You might depending on the market, you might go in to rent a unit for one of them. One hour, you know, at 10AM, you go and you look at the 10 by ten and it cost x. And at noon it might cost more or less than that than you saw at 10AM. They are literally pricing their units like airline seats, like hotels.

It moves by the demand. We're not quite we don't quite we could. We have the same software as they do. We don't quite manage that or change our rates that quickly, but that but that's where we get into dynamic pricing. So we're looking at the unit the unit mix, the and how each unit is what the occupancy, I should say, of each unit is in the market, what what our competitors are charging, and we're pricing based on that way.

So mom and pops aren't doing any of that. I walk into mom and pop facilities sometimes. It's it's everything's kept in an Excel. That's advanced. No.

Advanced is they're actually using software. Right? And one of the one of the there's three or four common, maybe five now common software management softwares out there. Advanced is using software, you know, kind of grade level, I'll call it, is they're using something else like Excel or I've seen notebooks. I walked in one guy's facility.

He had a whiteboard with magic marker on it and and the unit so it was a 10 by 10. And if it was, let's say, it was a hundred bucks a month. If the hundred was in green, they paid. If it was in yellow, they're late. If it was a red, they're delinquent.

Right? That was his management system. Like, my God, I hope the cleaning staff doesn't accidentally rub their shoulder against your management system. Your information's gone. You know, like, so that's some of the stuff you see when we're talking to the mom and pop facility owners or, you know, the sellers of it.

And by the way, I always wanna say this. It always sounds like I'm beating them up when I'm talking about mom and pop, you know, 70 year olds with their facilities. They're the ones walking away from the settlement table with a million, 2 million, 3, 4 million dollars. So they did something right. They were pioneers.

They either built it or they bought it, you know, ten, fifteen, twenty years ago because they saw the need. So I always wanna compliment them on on being the pioneers and and again, walking away with millions of dollars. But it's understandable that, you know, technology and in particular in storage because of COVID, technology went rapidly took over storage and really aided how we manage these things. So it's almost if I was 65, 70 years old and now technology is the new thing and I've already made a whole bunch of money and I want anything on the storage, I'm probably throwing up my hands too and not conforming to the new way of doing it and probably just sell this facility myself because I want to go retire to Florida or whatever. I mean, that's typically what they're doing, the way.

They're buying RVs. They're going to Florida. It's a similar story every time. But yeah, I mean, that's what we see. And that's the value add we bring is we're bringing it from $19.80 to $20.25 in a lot of cases.

I I touched on physical. You know, you guys get to take a a b, right, a b asset, a class b facility, and I don't even know. Did are there still multi families with granite countertops in them, or is it or completely wipe them off the face of the earth? I'm sorry. With for Micah.

Trent Werner: We're we're trying to wipe them off the earth.

Joe Downs: Are they still are they still exist? Oh, yeah. So but you guys, you know what where I'm going with this? You get to go in and redo the kitchen, bathrooms, paint, carpet, whatever it is. Show before and after, and everybody goes, oh my god.

I totally see what you did there. It's very understandable what you did and how you created value, and then you could charge more for that unit. Right? We have metal boxes. Like, I can't make them prettier.

Right? So the things we do physically can add value from a security standpoint, from a customer retention standpoint, but that's all we're really doing. Right? Well, we're not taking gravel drive aisles and paving them because the ROI isn't there. Right?

If it's gravel and it's full and the competitors are gravel, what are we doing? Why are we spending that money? What we'll do is we'll add lighting. We'll sure we have security cameras everywhere so that we can see what's going on. If there's no fencing and it needs it, we'll add it.

We'll make sure the gates are working and stuff like that. So we'll we'll make it a more secure, comfortable, safe feeling facility, especially since a lot of a lot of customers are are women. So you want them to feel safe at all hours of the day if you can. So that's the physical value add we do, but it doesn't have the same effect of the of what you guys get to do. Right?

So our real value add is actually in in how we manage it and market. And now here's a word from our sponsor.

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But every time that I've done it being 29 or I'm not 29 quite yet, but 28, I'm trying to do everything on my phone online. And if I have to go in and sign something in person, great. But a lot of the the two facilities that I've rented from, I like you said, I did everything from my phone. I got my confirmation code and my entry code and all that, and it was easy. So and I was able to find these units.

And so it sounds like the the big value add is raising rates, obviously, when when they can be raised, as well as the convenience component and the the the top of mind component of it. You want to be able to be found and it to be easy for someone to come in and rent a storage unit from you no matter the size. And it be competitive. Right?

Joe Downs: Yeah, absolutely. And don't get me wrong, raising rates is the monetary way that we're adding the value, right? That's how we realize it is by raising the rates. But we have to do all those other things so that we can raise the rates. And so again, lot of it's just back to management.

The mom and pop philosophy is keep it full, keep it headache free. Well, keeping it full and headache free, even if you have a website, even if you have the technology, a lot of times we'll find they're 20% below market. Why? Because they don't my favorite conversation is when they say, oh, we're the lowest rates in town. Thank you.

You just told me you're lower than all your competitors, so I know I'm gonna be able to create value without doing a lot just by fully, I call it boiling the frog slowly. Right? Do you know that analogy? If you put a frog in a pot and you turn the crank the heat, the frog will jump out. If you turn the heat up a degree a minute or well, I forgot how they do it.

But they've done these experiments. The frog will slowly boil to death. So that's a terrible analogy, but do you get the point? We will slowly raise the rates. We won't take you from $80 to a hundred and $50 Yeah.

In your first month. We'll take you from 80 to 85 or 90 if if that's what is warranted. Right? So It's it's and then and then we always hear these are my favorite conversations. This is when I know we've got a deal.

We're lowest rates in town. We're always full. Our customers love us. Oh, by the way, three or four of the units I use and my family use. There's always a church involved that has three to five units.

And then there's always 10 to 15 customers who haven't paid in six months to two years, don't worry, they're good for it.

Trent Werner: Yeah.

Joe Downs: They add up the the owners units, the church units, the delinquent units that are good for it. Oh, and then there's always 10 to 15 five to 10, probably more fair, where the doors are broken or the springs are broken, so they're not rented. They're not even in service to rent because they just haven't gotten around to fixing them. You add it all up, there's 20 to 30 units sometimes that aren't even in circulation for revenue to to bring in revenue in a market that's undersupplied. Right?

So you got lower rates. We we don't we're not even renting a lot. So those are the types of things we're looking for with mom and pop.

Trent Werner: Right. And and so we've talked about kinda your your classic storage facility, right? The 10 by tens, five by tens, 10 by twenties, all those all the all the units that I'm familiar with.

Joe Downs: Yeah.

Trent Werner: You were telling me beforehand, before we started recording about a I I mean, I could call it kind of a new age, new niche in the storage space. Right? And and I think everyone is familiar with how popular the classic self storage has been over the last ten years. Right? Yeah.

But what is this new niche that you were describing to me that is maybe not so much business to customer, but business to business.

Joe Downs: Yeah. I love to tell you about it. In fact, we bought a facility in Wilmington, North Carolina that opened our eyes to it. And and maybe a good analogy is, you know, before Home Depot and Lowe's, there were hard there were small neighborhood hardware stores everywhere. Right?

That's how I look at storage facilities that are inconveniently servicing needs of business owners and contractors. Right? But businesses. And what I mean by that is there are a ton of business owners and in particular contractors, plumbers, electricians, whatever, that use traditional b to c business to customer self storage where they might be renting a 10 by 10, which is a hundred square feet, or a 10 by 2,200 square feet, or a 15 by 20 I guess, is that 300 square feet? I think so.

Right? But all of those units, and they're renting them for inventory, for to for tools, whatever it is. Right? And I'm not even talking about ecommerce customers, business customers yet. Although, I promise you, some of them are using these units as well.

But they're traditional units. Right? So they have eight foot ceilings and seven and a half foot roll up doors. When I don't know what number facility this was for us. It was called M2 Maxi.

We've rebranded it Nextdoor Storage in Wilmington, North Carolina. When we stumbled upon this one, it was it was different. It was different than all the rest. The smallest unit size so I told you a typical b to c unit size are two bedroom apartment of storage. The most common unit size is the 10 by 1,000 square feet, eight foot ceiling.

The smallest unit in this facility as we were looking at it was 450 square feet. Bigger than our our the smallest unit was bigger than our largest unit in every other facility we own. The largest unit there was 950 square feet. 14 foot ceilings. They're 12 to 15 feet wide, 25 to 40 feet deep or 45 feet deep.

I forget. You could drive a truck into it, a box fan, a van with ladders on top, an RV, a boat. Right? That's that's a big business to business size storage unit. 12 and a half foot roll up door.

Right? And a man door, they're called, that you can walk in. Right? So this is very different than everything we've looked at to this point. This is our probably seventh or eighth.

I think we own seven or eighth by this point. So we know what we're doing. We've been busy in the space, but we have not encountered this yet. So we kinda we struggled with how to underwrite it, to be honest. We knew comparing it to traditional storage was not the right thing to do, but we looked at that anyway.

And from a dollar per square foot, from a rent per square foot perspective, it was well below even the traditional storage rates in the market. Then what we realized is, hey, there's actually some competitors. So I'm trying to tie this together. When you say new niche, and I and it kind of is a new niche, but it's it's new in the way we're gonna do it. And that and that's why I let that's why I used the Home Depot versus the local hardware store example.

Because when we started to research these, this type of facility, we found 40 or 50 of them around the country. And there's probably more. We just only found 40 to 50. And we found them we started looking for them because when we put this one under contract, and I'm skipped over part of the story I'll tell you in a second, as to why we got excited about it. We started to look to see if we could buy more of them.

So it's a new it it it's weird. It's hardware store Home Depot the concept of Home Depot is big. Right? Big the hardware store for for an entire region. The concept of the local hardware store was just the local little hardware store in the town.

You have these local little b to b, what we've now coined pro storage facilities, but used to be called or sometimes are called large format storage facilities. The one we bought in Wilmington was was the guy called it a contractor storage facility for good reason. It was built by a plumber. And 80% of the customers, it was 54,000 square feet plus 20 spots parking spots. So 80% of the the customers of 40,000 of the 54,000 square feet were contractors.

They were electricians, plumbers, you know, you name it, landscapers, hardscapers. So and then the other 20 were boats, RVs, and some guys that had like, you know, fancy either fancy cars or antique cars. And it was kinda like they're they're a little, you know, man cave if you will. Right? But they were but the rent per square foot was 45¢ a square foot per month.

The traditional storage of the market was like $75.80. So we just knew there was something wrong here. And then again, and here's the part I skip. I knew I was gonna tell you about it. So while we're in due diligence, we're trying to figure out what we have here.

And by the way, why are we buying this if we don't know what it is? The seller very quickly in negotiations was willing to do seller financing. That was very compelling. At a 6% rate when rates were ballooning to 78%, so it was way below market rate. We structured a deal where we put 25% down.

He didn't get the ask he wanted. He wanted $5,000,000 We bought it for 4.55, I think, at 6% with 25 percent down. So the financing was compelling. If we could finally tie off why this why we should be buying this thing and what the heck is it? So I there's a guy locally in Philadelphia who during COVID had sold 21 of his facilities.

And we had a mutual friend. And so I had already been meeting with him like once a quarter we'd meet for breakfast. And just pick his brain because we were still we were ramping up our business and still learning. And so his name's Ed, I said I met him for breakfast. I said, Ed, listen, let me tell you about this deal I'm looking at in Wilmington.

It's a lot. It's got a lot of contractors, like 80% contractors. You own 21 facilities in the Philadelphia area. Did you have contractors in your facilities? And he said, of course, I had a lot of them.

Contractors are great. They're very sticky. And he gave me the pros and cons. Pros were they're very sticky, but they're very good customers. The cons were they're harder on your facility.

Don't give them power. Don't let them work there, stuff like that. And then he said, whatever maintenance budget you have for your gate, the gate maintenance, triple it. Because your average consumer, Trent, you probably visited your storage facility three to four times a year. People more, but that's the average.

So there's not a lot of gate usage. Contractors are in and out at least once a day. That's twice a day that the thing opens for them. So he said just budget for that. I'm like, Okay.

And then we're walking out the door paying the check, and he almost didn't tell me his part. He said, you know, Joe, the contractors are great, as you've said. But you know, the only time you ever would ever lose them was when they outgroom me. And then they go find, you know, a couple couple thousand square feet of flex or they'd split flex space with somebody or whatever. We're walking out the door, he goes, you know, you should probably look into that.

You heard of Last Mile Warehouse. Right? And I said, I've heard of it, but I don't I don't know what it is. It's not my not my niche I'm in. He said, I'd look into that.

He said that with ecommerce everything is going on. All the Amazons and the Walmarts and all the online retailers, they're gobbling up all of the flex and warehouse space everywhere. And the rents in those spaces are doubling at least. And it's pushing out the contractors who could barely afford it to begin with. And then and then he left.

That was it. It was like, what? This is interesting. So I went back. I came back.

I'm scratching my head. I'm like, So Jack who, does our underwriting and, the office said, Jack, let and we started talking about it and Jack's really sharp guy. I said, Jack, if you were a contractor in our facility that we're about to buy and we raised the rent so high on you that you were like, screw these guys. I'm out of here. Where would you go?

He said, I don't know. I said, well, go in the market and find find a place for your business because you now have a business. You're renting a thousand square feet from us. So he set out. He looked up LoopNet.

He went on Craigslist, whatever. Came back and he goes, interesting. I said, what? He said, well, there's I found three potential places we could move the business to. Said, what what are they?

He said, they showed me pictures of them. None of them look like what we have. You can't drive your truck into it. It's not not a nice secure facility. And by the way, this facility was like a class b.

It's not it's not beautiful or anything like that. Maybe even class c. But it was a it was a clean looking facility. Right? This m two maxi.

So and what what did they cost? 12 to $14 a foot annualized. So a dollar to what is that? A dollar 30 something a foot, triple net. So really more like 14 to 16 or $17 annualized.

And here we are at $6 annualized. We're not losing anybody if we raise rents because there's nowhere to go. And even in that market, found some competitors, smaller competitors than even we were, but in the Wellington market, smaller hardware stores, if you will, who were closer to a buck a foot and were worth $0.45 So all of a sudden now we're like, wait a second. There's something going on here with this niche. We were also looking at Boat and RV at the time and and developing, Boat and RV facilities.

And here these these this one product with which looks like storage caters to businesses and boats and RVs. I said, well, this is interesting. So we started to look that's that's what drove us to look around the country for more to see if we could buy more of them. And we came close in a couple, but I think those owners realized they had pretty valuable assets. So we haven't bought another one yet.

But that has led us to we've done a ton of research on e commerce. We know what's going on in that space and we've now put together a deal, brought in investors, we just lined up the debt and we break ground. We close we already bought the land and we close on the loan and break ground May 9 on a piece of dirt we bought in Greenville, South Carolina to launch what will be called Store Pro, which is our brand name. But we've coined the term for this for this class of business, this class of storage, pro storage. And the reason we coined that term is because it's really it's a facility for business owners, whether you're a contractor or you could be a catering company.

Right? A catering company needs a retail spot to you're gonna get married someday, I'm sure. And you and your bride are gonna sit down in an office in front of a catering company, maybe. And they're gonna sell you this beautiful wedding and package and blah blah blah blah blah. You need a nice retail space for that.

But with the catering and that might be $20, 20 2 bucks, you know, for the retail space. But what that catering company doesn't need is to pay a thousand dollar or for a thousand square feet at $22 to store racks of glasses and dishes and tables and chairs. Right? They need flex warehouse for that or storage. Right?

So whether you're a contractor who's driving the truck in and leaving it, whether you're a business owner who has business needs, inventory needs, whatever, or a boat or an RV owner who's looking for fully enclosed storage, we cater to all of it. That's why we called it pro storage because there's no other name that really it's really pro for professional. Right? But it's it's a b to b professional or high net worth c facility. So that's and and it's being driven by ecommerce.

So here's the there I'll just leave it as one stat, and this one just blows everybody's mind. Today, Amazon and Walmart, the two biggest online sellers, they know today that if you if they can't deliver a product to you same day or next day, they're losing 25% of sales. 25%. If they aren't delivering you that product by the next day. That's today.

Next year, that number is supposed to go to 50%. What does that mean? That means they have to have everything we want within delivery drivable delivery of us, almost like a Domino's. Right? Not thirty minutes, but same day, next day.

So it's gotta be within half hour, forty five minutes, an hour of us, where you live, where I live. And it doesn't matter what the product is because you're they're losing sales. It's it's gonna be 50% extra. So they are gobbling up all of the infill warehouse, and you see them being built too, the big ones. Right?

The massive ones being built everywhere. But then also and they're building those in the middle of nowhere because that's where they can find that much land. But to get to you in a densely populated Portland or me in the suburbs of a densely populated Philadelphia, they they need to gobble up the existing 50,000, 20 thousand, hundred thousand square feet that already exists, and they're doubling and tripling the rents. The demand is tremendous for that space. It's pushing out everybody else that used to occupy it.

Hence, the need for what we're providing, which is ProStorage. And you're also seeing small bay flex pop up. Small bay flex is the same thing we're doing, except you're signing a lease, whether it's one, three, or five years or whatever you negotiate, it's probably triple net. Similar type of space, maybe you're working in it. Ours is not.

It's just storage. So we're meeting we're meeting those demands for all those businesses. And what we like about ours is it's more flexible. So whether you're seasonal or your business is growing or contract, whatever, you know, you can rent a thousand from us, $7.50, 5 hundred, a thousand for a year, five hundred another 500 for six months, three months, whatever. It's month to monthly, so it's storage.

So that's that's the the I I like the way you put it new niche. It's not a new concept, but it's it's never been done in mass before, kinda like Home Depot brought hardware stores into the the the masses, right, and and blew it up everywhere. That's that's what we're that's what we're hoping to do here with with ProStorage and and Store Pro.

Trent Werner: Well and let me ask you, from from the one that was pre existing that you guys bought and basically learned from right the trial run of this concept to the one that you're developing now yourselves. Are you building it the exact same way or are you making some adjustments?

Joe Downs: Adjustments. Yeah.

Trent Werner: Okay. And what kind of adjustments are you making?

Joe Downs: So a great question. So that one is it's a I would say it's a class c facility because it's it's it's older. It's 20 years old. It's in a business park. It's not a we love the deal.

Don't get me wrong. I mean, it also came with another almost three acres and we're we're developing that right now and putting parking there. So that that deal if you're an investor in it just keeps getting But but that and that was the idea for what we're doing. But we also recognize this isn't what we wanna go build. And and at least we don't wanna enter markets with it.

So that maybe we'll build a class, a new class c from a from a an amenity standpoint down the line. We're building a class a pro storage facility. So the unit sizes aren't much different, but the amenities are. So we'll have power, we'll have a climate control option, you'll have CCTV in inside if you want. You will have the ability to turn power on for you.

You won't be able to work there, but you might wanna charge batteries or do whatever you're doing overnight. So you'll have the ability to I can't charge you an electrician, a generation charge, but I can charge you a cover charge. So if you're renting a unit and you want power in the unit, could add a you know $50 a month for power to give you the key to turn it on, which is you know flipping a breaker you know in in the office. We'll have a clubhouse. So you might wanna, depending on your business, you might wanna meet clients there.

The clubhouse will have a community bathroom, by the way, so have a facility for you to use the bathroom if you're, you know because sometimes we'll you're a contractor and you got guys meeting you there, loading up trucks and going. You might wanna use the bathroom. There'll be, you know, coffee and whatever in there. Meeting rooms for for clients, whether small client meetings or or big client meetings. So and and then in one or two of the iterations, we'll have we'll cater to the RVs.

It'll be depending on where we are. If it's more of an RV boat focused meaning if we're gonna have we think we'll have 25% of those customers, we'll have some amenities that cater to them like dump stations and and wash stations and stuff like that. But if it's gonna be more of a business park then then we'll have less of that and focus more on the clubhouse. So but it's it's a class a looking facility. I mean, it's in you know, and we're building it aesthetically pleasing for municipalities and it's gonna look like a really sharp, sharp facility and almost not like a facility from the outside.

It'll look like a little business park and then you drive in. It'll look like a brand new storage facility to to you know, anyone who's used to seeing storage. You know, with our nice color scheme and everything. But from the outside the exterior, it's gonna look more like a business park. So it's it's a really cool looking facility and I think it's gonna be very well embraced.

In fact, we get nothing but positive feedback from everybody we show it to.

Trent Werner: Very nice. And I'm definitely excited to see where you go with this and and all the future success you guys have. Where can people learn more from from you about the business, about Joe Downs, connect with you or or you know, hear other appearances that you may have done?

Joe Downs: Yeah. Our website is bellrosegroup.com which is bellrosegrp.com. And no one ever emails me, but I always give it out. Joebelroseam dot com. Belrose is belr0se,aasinasset,masinmanagement.com.

Joebelroseam Com. And, yeah, we buy value add facilities. If you're interested in investing passively, love to talk to you. If you're we teach people how to buy storage. If you're interested in buying a storage facility, a lot of people don't realize they can get into them for, you know, $500, 6 hundred grand, 7 hundred grand.

Never been a better time to buy storage. And you can use the SBA loan because it's a business. That's an advantage that storage has, which means you can put less down. So if you have 200, 2 hundred and 50 thousand, you're in play on a lot of storage facilities. Meaning you can buy them and create value just like we do.

So I love to we love we're deal junkies. We love the space. So happy to field emails, point you in the right direction if I can't help you.

Trent Werner: Awesome. Well, Joe, thank you so much for sharing about your assets in the normal niche and your assets and future assets in the new niche of storage space. And thank you for taking time to talk with our listeners today.

Joe Downs: Trent, thank you so much for having me. I'm going to commend you before I go for even putting podcasts out there. When I was coming up and trying to fight my way, we didn't have podcasts to listen to. So, you know, guys like you are providing an invaluable service to your listeners. So I hope they appreciate it.

Trent Werner: Thanks, Joe.

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