WIN177. The 4Ds of Self-Storage - Why Demand Keeps Growing with Bill Kanatas & Ben Salzberg

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Trent: Welcome back to another episode of the deal deep dive segment on the Westside Investors Network podcast. I'm your host, Trent Werner. 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 Westside Investors Network podcast. I'm your host, Trent Warner. On today's episode, we are joined by two guests, Bill Kanadis and Ben Salzberg of Self Storage Developers. Bill and Ben teamed up over five years ago now to form a self storage development company that operates across multiple states.

They brought in REIT level management for their properties, as well as back end administrative, so they can focus on what they do best. And that's develop real estate and build self storage assets. Bill and Ben are gonna talk about the underwriting process, how to find deals, how they're able to operate across multiple different states, and the benefits from having REIT level management, as well as tax benefits associated with self storage developments. Now let's welcome Ben and Bill. All right, we are joined by two guests today on the Westside Investors Network podcast.

I'm excited to talk self storage development and maybe dive into some other development questions as well, because I know both of you have experience in this field. We're joined by Bill Kanadis and Ben Salzberg of Self Storage Developers. Guys, thanks for joining us.

Ben: Oh, thank you for having us online here, Trent. Really appreciate it.

Trent: And I honestly don't know if I've had a guest that focuses specifically in self storage development. So I'm excited to learn more about it and share that with our listeners. Before we dive into the business, clearly, there's two people behind this business that make it go and and created it. So I wanna hear more about your guys' career path and how you got into self storage development. Ben, let's start with you.

Ben: Oh, I appreciate that. So my background, I'm mechanical engineer education, graduated from U of I Champaign Urbana, grade school. I also went to Oton College before U of I. Also got an MBA specialized in quality. I'm also a teacher, educated Masters in Teaching.

So my path and focus always was on Six Sigma, Master Black Belt, Quality. So I'm a turnaround guy, going to corporations, turn around, and make the company more profitable. I work for, like, companies like Amtrak with the CEO, ADP, Big Abbott, AbbVie. So I help these guys make it more profitable, save the company and right hand individual for these individuals. During Amtrak, I was negotiating the air rights with the Boeing building in Chicago because the building was over Amtrak Railway and decided, hey, you know what?

I love the negotiations. I love real estate and got in like around 1999 and loved all that stuff. Became a real estate managing broker, manage a lot of different types of commercial real estate projects and decided, hey, you know what? I think that this is the route for me. Quality, engineering, it's all involved in real estate.

So I'm like, you know what? I think that this is my path. And so many years ago, about four or five years ago, I met up with Bill. Bill's a great individual, and I did some analysis before I even met him. I'm like, you know what?

Self storage is the way to go. And so, you know, I just kinda click in life and find your path, and this is the kind of the path that took me to a very sexy product, which is, of course, self storage. And so so it can't get better than that. Right? And we'll talk about more about the sexy product, but I wanna turn it over to Bill and he can talk about his kind of background.

And by the way, one other thing I wanna say before I do that, I am a trustee for Oakton College. I used to I'm still on the board. I was chairman of the college. They have three campuses in Des Plaines, Skokie, and Evanston in Illinois. I'm very involved with different cities and across even the country because it is an elected position, about half a million people.

And so I love people. It's all about people, this business. And that's kind of where my focus is, kind of outreaching to the community. So, Bill, take it away.

Bill: Well, don't know if I can follow that great introduction, but I started my career in financing. So thirty years ago, I bought a mortgage company and did residential mortgages, and through that we started doing commercial mortgages and started a little commercial fund. We were financing builders and developers that were doing big tracts of land where they're bringing in the water, sewers, streets, and at that time my partner and I were doing the financing on it. We said, Boy, these guys are making a lot of money and it can't be that hard.

We started our own development company, started financing our own deals, and we started with the residential homes. From there, we moved into retail strip centers. We built some retail strip centers here in Illinois, also in Florida, and from there we started doing some office condos. The smaller ones were for doctors and professionals, lawyers, etc. We'd sell them their own condo.

We did that for many years. And recent years, like in the last ten years, we were building some car washes and we had a great success with that. These were the automated car washes, dollars 5 to go through, that's the basic price, and by the time you're out of there, it's probably about $17 free vacuums. Did that really well for a while, enjoyed it, and private equity came in and they wanted to fuel it with more money and grow it, so it gave us the opportunity to exit at that time, and our operational partners stayed behind to continue to operate these to this day. And we grew the portfolio.

When I left, I think we had four operational and two that were entitled and we were about to build on them, and today they have about 14. So that brand's doing very well. Ben and I were talking back, and this is pre COVID, so we're talking about 2020ish, and we're talking about getting into self storage. And we loved it. There's a lot of things about self storage that are exciting and, as Ben will say, sexy.

But it's a product that everybody needs. Everybody needs self storage at some point in their life. In our industry, we call it the four D, so it's death. You're going to need to put stuff when somebody dies. Ben will tell you a story with his parents recently.

When they passed away, they had to go into storage. You've got dislocation. People are moving now, or people are downsizing their homes. So there's always something that somebody's going to need that product, and we're there for them. And we build them in communities that have a need for self storage.

So we've been concentrating on that. We develop them nationally. We also love boat and RV storage with canopies. You can put solar on top of that to help give energy to the facility itself, or sometimes you sell that off to the grid as well. So we are in self storage for the long haul.

We opened up our first facility in 2022. Public Storage is operating it. They're doing a great job and we have a lot more in the pipeline and more under development.

Trent: Well, I'm curious. You mentioned the four D's and I only got two of them. What are the other two?

Bill: Oh, the three. I'm sorry. So it's divorce, downsizing, dislocation, and then come in with the fourth. Remember what was? Go ahead.

I got stumped in there. So it's divorce, downsizing Displacement. It's displacement. And displacement. Displacement.

Okay.

Ben: Yeah. So so I I just wanna make sure that he knows. You know? It's very important. It's a test.

No. You know what? It it's it's funny because, you know, we really with with these sexy product, which I call self storage, we we really help the high income investors shield taxes, which Bill can talk to you about, and build generation growth through, like, class a storage prestructures for, like, kind of REIT acquisitions. And and and that's kinda, you know, what the kinda whole model is all about. Right?

Is to provide these vehicles, wealth vehicles to help different populations out. And that that's even though we build product, but it's really helping out people, and and we're to invest in these different products.

Trent: And you guys you guys mentioned that you're not just focused specifically in Illinois, but you guys look I mean, sounds like all over the country. How are you finding deals with such a wide net or or, I guess, land with such a wide net that you're casting instead of focusing on one state or one area or region of the country?

Bill: So we you know, the one we just found that we have in California, we actually met the owners while we were traveling, and we're always talking to people and looking with different landowners, but we have a big, big network of real estate brokers that we work with throughout the country. We work with the CCIMs, both Ben and I also have commercial real estate licenses, but we work with a lot of the bigger brokers that find us deals, to be honest with you. We look for deals that maybe are not listed yet. We look for pockets. Ben and I identify the pocket first.

Where's the growth going? Obviously, Vegas saw a big growth, you got Arizona, you got Nashville now that has a big growth, so we're not necessarily just following the growth, but we're trying to get ahead of the growth a little bit and see where these new home developments are going. We were just talking to a developer yesterday who was doing several 100 homes in Portland. I mean, several 100 homes in Portland. So, our network of people and developers that we talk to Ben also follows trends.

Where's the next Tesla battery gonna be made, or where's the Apple gonna go, or where's the jobs being created? All that stuff are trends that we follow, and then we look for pockets in those areas.

Ben: It helps because I am a statistician being a Six Sigma guy, quality, it's all it's all statistics and engineering. And so I have different software, different types of, you know, systems set up to analyze, to see where these pockets are, you know, where we should go. You know, it's not like we just throw a dart and say, there we go. That's what we're gonna do. We we're not like that, you know.

And it requires due diligence, but it it's more sophisticated to us is that our leg up is by background. I can really analyze statistically and probability studies exactly what we should be doing and how it should be done in these pockets. It's nice that we don't have to hire a specific team of quality guys since I have been doing it for so many years. That's how we find it, through Bill's network, through Rye Networks, putting it all together, analyzing these processes and systems gives us a good areas to focus on.

Trent: So let's let's use Portland for an example, because I don't think you guys have a project going on here yourselves, right? No. So, you mean, you said you talked to someone that's developing hundreds of houses here in Portland. And being in Portland myself, I can give you both sides of the the story here. But if you if you talk to someone like that that says, yeah, I'm I'm developing hundreds of homes in Portland, what do you guys do with that information?

Do you guys then go underwrite a market like Portland, or or do you just focus on whatever markets you've already you're already focused on and and just keep that in the back burner?

Ben: Sorry, go ahead. I would

Bill: say that's a great question. So anytime we talk to somebody, we learn more about this growth. We put that on our radar. So we then put that in the funnel just to go and start doing some investigations. What is the per capita on that area?

What is the current population? Where's the population going to be in the next couple of years? What is the income in the demographics over here? And then what is the competition? And a lot of times, you've to call these cities to see if there's anything under review right now.

Is there another developer and they're trying to develop self storage? So that's some of the information you don't know. But we also have relationships with public storage and extra space storage, so we would also call out to them and say, Hey, we're looking at this area. What do you think? And they're going to say, Hey, great area.

We're also targeting it. Or, Hey, we're two miles away. We've been meaning to get into this area. So we use all of our resources to look at it. So Portland had a great call with a developer yesterday.

It's on my, you know, task. I have a little to do list of things I wanna follow-up with, and that's one of them.

Ben: And, you know, and to your point, Trent, we go in and look at, you know, any restrictive covenants. I mean, if it is a zone, is he like it, is you know, what's actually the heartbeat? What's going on in the area? You know, like, you know, some areas are like Rhode Island. You know, they they hate, like, some self storage or some particular, like, segments of it.

You know how to get down around it, but how to get work with the community to make it a feasible project that everybody loves. Because because I'm a let's say professional and person, I want to have an outreach with the community. I love people. It's about the people. And so the community loves it, then it will happen.

If they hate it, it will never happen.

Trent: Well, and then just speaking of community, I guess, or more municipality, all these different counties and cities are have such different rules. Do you have specific areas or or metrics that you're looking at in terms of the municipality and development rules and costs and those sort of things?

Ben: Well, in turn, as far as the the rule book, I'll take my encyclopedia out in the back because every every municipality has, you write, their own rules and their own systems and processes. And so first, have to, like, see if it's a feasible project, and then you have to dive deeper into those rules and see if the project will work.

Trent: Yeah. And I guess, you know, again, being in Portland, it we're known for having very expensive SDC fees and and

Bill: it Yeah.

Trent: Forever. If you guys are made aware or or find out what that side of the potential or the market looks like? Is it you know, are do you have any metrics around that side of of underwriting a market?

Bill: You're talking specific to the the fees or impact fees that you have with the community?

Trent: Yeah. Like, the development cost. Because if you compare Portland to Idaho I mean, Idaho, you could probably walk into the office and get a get a building permit right then and there. But Portland's gonna take you eight, ten months. You know?

Ben: You know? And I have to tell you, Trent, Chicago is where we live. Mhmm. I don't know if it's much difference in Portland, but Chicago is very Illinois is very difficult state, you know? And so other states are much easier than ours.

I can tell you that right now. Okay. Even California, because the fact is that, you know, if you understand the barriers of entry and you can look at, you know, why these are occurring and how to get over them, then you can put a system and process together. You know, you don't. I don't want to be like Moses, right?

And like, you know, one hundred years from now and build a project. But you know, I definitely, you know, if there's if there's if it's feasible to do and it's within the time and the works, you know, analytically, we'll do it. But if it's those hanging fruits that are just so hard to reach and so much lift, will walk away Bill and I will walk away with it because it's not worth it. And it's not just worth to us, but our investors because we look at everyone. Right?

And we wanna make sure that everybody is safe and comfortable to do these projects. And so we definitely look at all aspects from zoning to TIF districts to to everything that goes to looking to build these projects. It's very important to do it. And that's why I say I have a lot of statistical background to look at all these different factors. And it is like an encyclopedia because every state and every district is different.

Absolutely. And there are some, by the way, you can walk in the office. Here I am. I'm building this. Oh, here here's the permit.

Bye.

Bill: Yeah. Absolutely. And there

Ben: are some you'll be like, alright. Maybe in two years, you'll build it. Right. Well, you

Bill: know and and I'll add to that point. Ben and I just met with a couple of villages this week, and you really need to understand what is the need for the community. What do they want to see? I remember when we were building car washes, you go to some communities like, no, no, no, no car washes. And It's going be loud.

The kids are going to be out there washing their cars. They gave you all the reasons why they didn't want it. But we walked into one community and the mayor said, This is great because I'm sick and tired of sending my police cars and all the municipality vehicles that we own to the village next door because we don't even have a car wash here. He goes, How quickly can you guys start? And he wasn't joking.

He actually turned it to the person that was in charge of the permits, the economic developer, and says, How quickly can we get these guys permits? She's like, Well, mayor, we still have to go through the process of getting it rezoned. He's like, Well, how long is that gonna take? So, he was eager. You got a community that's eager, and they want to put it through the fast track, and you got another community that is slowing you down.

But Ben, being an elected official, he understands also how to talk to some of these politicians because at the end of the day, what do they want to do? They want to do something good for the community, it's about their constituents, they want to get reelected again, and we don't want to swim against the current. We want to be with the villages. We want to help them, right? This is something that they need.

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Trent: So that's that's more the the underwriting part of this whole business and process. What happens after you've identified a market got land and are ready to go?

Ben: We go to Home Depot and buy some product.

Bill: So we we work really closely with our We have consultants that are part of our team that we work closely. They're really not even consultants. They're on our advisory board. They're friends. Their colleagues have been in the business for, some of them, thirty, forty years.

And we all agree that this is what we're going to go for. Once we agree to that, we sit down with Publican Extra and we say, this is the market. Anybody else going to go in there? Can you manage it? Do you have a team in place?

Once we get a green light from one of them that they want to take it on as a management, they run a financial model for us. That financial model is really the income and expenses and how long it's going to take for them to stabilize the property, etc. While they're doing that, we're now working with the design team to start putting what the design's gonna look like. In Chicago, we're doing one right now. It is a full drive through, and you're gonna be able to drive your car through there, unload it because have winter conditions here.

Right?

Ben: Chicago Ridge, by the way.

Bill: Yeah. It's in Chicago Ridge, the suburb of Chicago. But in here, have the weather that we deal with. In Palmdale, California, it's not going to have that. It's going to be a drive up or drive in, but it's a loading bay, and it's a different climate there.

It's going be a single story versus the three story here. That affects your budget, obviously. Your land cost is one big factor, your soft cost and your development cost is a big factor, but then your vertical construction is a big one. So we work with our team to come up with numbers of what the construction is going to look like based on other projects they've done in the area. So the one in Palmdale, the GC out there, is a guy that builds in California who understands the market and he'll give us different numbers.

Then we take those and analyze it, and then we work backwards. What do our investors need to get? What is the targeted return from them? What does the bank financing look like? Where's equity gonna come from?

All those are one big pot. Right? And Ben will tell you we're like an orchestra conductor. Right? Yep.

Ben: Right. Correct. And, you know, we just don't go and build and say, okay. Let's say build now or or we love this product. We we have those communications open before we even consider to build with the cities.

And so we meet with the city. We meet make sure that the economic development arena in the in the city understands what we're doing, likes what we're doing. So when everything is teed up by even, you know, the architect prints are being drawn, everything's being done and presented, the city already has relationships with us. So they're not surprised saying that we don't like this. We don't want this.

You know, I don't know who you are. We're not like that. And so we love people. So we'll we'll go in and and and, you know, put all of our cars on the table and make sure that everybody really loves this project. And so and even the people that we work for with the, civil engineers, architects, and those people we really have also very close relationships with.

And so if there is a situation, because we have those relationships, we can get over those barriers and solve them together rather than, well, that's your problem, not my problem. We never point fingers. That's what problem is with any project. I don't care if it's development or in a company. People always want to not be offended or call their baby ugly and say, oh, I don't wanna show my cards.

If we all show you our cards and we show what were made a mistake or unsure of, then we'll be able to work together and build something great. And that's what we're all about is building something great and building an environment where everybody profits and wins. It's a team. Know, anything like a football team, soccer ball team, we are a team. And that's how we live Bill and I live our life as a team.

Trent: What so, I mean, Bill, you've mentioned a couple times extra in public. So are when you're developing these these projects, are they managing it for you? Or are you guys self managing?

Bill: No, we have a third party manager, and it's one of the major REITs. So either public storage or extra space at this time. Okay. Yeah.

Trent: So but you guys may retain ownership of the asset and then have basically property managers as if you're you know, we're talking multifamily, right?

Bill: Yeah, it's exactly right. And our philosophy is who can do it better? You know, Sure, can we call it the Bill and Ben storage? It'd be fun, but these guys are the big gorillas, the 800 pound gorilla in the room. They've been doing this since the '70s.

They know how to do it, they know how to get the people in there, they control the market, and they do a great job. Then our goal is to sell it to them. Who's better to buy it than somebody that manages? If you and I were running, I'm making this up a restaurant together, we know the numbers, you know what it is, and one partner buys the other partner out and says, Okay, this is what it is. Same thing with these big REITs.

The reason that the third party management was really brought into play for them wasn't necessarily to make money off of third party management, it's they're inside. They see it. They control the market. They can see how rates are going up. They see how this store is performing versus this store, and they need to buy more product.

They're very profitable, they make a lot of money, and at the end of the year they have two choices: distribute it to their shareholders, or buy more and grow more. And the more they buy and grow, the bigger and better they get and the more assets they have. So our goal is to sell to public or Extra Space. And it could be any one of the other REITs. It doesn't have to be them.

Ben: You know, I and I think I think also the question is, like, why not multifamily? Why why self storage? You know, what what what's the difference? You know, self storage, you never hear a complaint from your neighbors. The music being too loud, the toilet's broken, I don't know, somebody broke the sink.

We don't have that. Right? And so it's such a good asset class that, you know, it's really it's a machine that runs itself. It really is. And so that's a huge difference.

You know, I know the bill can talk about a lot of the tax benefits of self storage and and and all about that stuff. But, you know, a lot of people I mean, if you own multifamily, you have to deal with all your your, you know, people living there. Right? And neighbors and fights and rents not paying on time. You know what happens if people don't pay on time, Trent, for our self storage?

What do you think happens? We kick them out. I mean, you don't pay a month. They're gone. I mean, don't have to go through like the court system.

We don't have to get a foreclosure. We don't have to do. You don't pay. You're you're absolutely out of here. We we you know, we'll do a lot like storage wars.

So they'll auction your stuff off, and the next day, we'll run it again. So, you know, that's kinda like the the difference in, you know, strategy that, you know, self storage comes into play. But more more than that, as far as financially goes, is it's a lot less aggravating, but financially with tax and other stuff, it's more profitable.

Trent: And I was actually I had this conversation the other day with one of our partners, and he was talking about asset classes where the real estate is the business. And and that's car washes, self storage, laundromat, those types of things where you have way less headaches than when the real estate has a business that operates out of it, if that makes sense. And I started thinking about it. And one of the questions that I had after that conversation was surrounding self storage, and the fact that, you know, I'm used to multifamily. So we have repairs and maintenance all the time, we have work orders coming in all these things.

What does the expense ratio look like on a self storage property? It can't be nearly as high as a multifamily asset, right?

Bill: No, the repairs are not that bad. I think last year was probably about $20,000 on one of our facilities. They're not that bad at all. And then these REITs charge you a management fee. They can range anywhere from 4% to 6%.

And then the biggest expense, I'm gonna be honest with you, is probably advertising. It's not crazy, but they spend a lot of time on advertising. Because they're so big, they're able to and they have so many stores, they're able to distribute it through all their stores. But that's an expense. Other than that, no, you have one employee that's there.

And in our facility, we would have an employee from 09:30 to 05:30, but then you would have hours that open up earlier. So with gate access, they can get in there earlier, but you only have one employee. The great thing about this too is, and I've been in so many different businesses in my career, if your manager is sick that day, if you ran this by yourself, if this was yours, like it was a laundry van, your manager said, I'm not coming. Well, guess what? You're getting in the car and if you're married, you're telling your wife I'm going to work today.

But the good thing about these REITs is they have regional managers in the area and other floating managers, and they're all in the same system. So they know exactly how to operate. It's like walking in from one system to another. There's nothing different. They got the codes that come in instead of a computer.

It's all done. So yeah, it's a lot better. I've owned multifamily myself and a lot less headaches to your point and to Ben's point.

Trent: And what what is I'm again, I'm so used to multifamily underwriting and returns and all that stuff. And so when you guys are looking at a self storage deal, what is a tight target IRR or AAR? What kind of numbers and metrics are you targeting and looking at?

Bill: Sure. So we start backwards and look at what the investor needs. And our typical deal is we pay a perforate to the investors. Create two classes a share, A and B, we say. A goes to the investors, B goes to us to the GP.

We typically give 50% to 60% to the investors and anywhere from 8% to 10% on the pref rate. And the reason I'll say 8% to 1050% to 60%, we start in the back and we want to make sure the investors get a 20% IRR or a 30% cash on cash. If we hit that metric, if we've to give up more of the GP side to get them to 60 or to 65, then we will do that because it has to be attractive for the investors. We try to do our first distribution in year three, and once it's stabilized and cash flows enough money to debt service and cover the bank debt, because they're gonna have their covenants with a debt cover ratio. Once it hits that and the bank's releasing any of our money that we have already as interest reserves, then we distribute that to the investor.

The quicker we can get that in their hands, the quicker or higher IRR that they will achieve. So targeted IRRs for the investors, 20% or higher.

Trent: Okay. And like you said, typically a pref return is starting in year three?

Bill: Yes, Distribution. No. It starts accruing in the minute we receive the money distribution in year three.

Trent: Got it. And how long does a oh, Ben, go for it.

Ben: Yeah. Yeah. I I just wanna say, you know, the difference between also multifamily, you know, you're talking about all these, you know you know, what the probability, the IRs are. But, you know, it's keep in mind too. When you have a when rent out a multifamily home, you rent it out for one year contracts or maybe two at the most.

Right? And a lease. Public storage, extra space, or any store self storage, you're month to month. And so what you're paying now, today, you'll be paying a different price tomorrow because it's a ramp up. And so, you know, you get in for a dollar like, oh my god.

I got this for a dollar. And maybe like four months right now, you're paying like a $180. And so it's no longer a dollar. And so that's a big difference. And so that's a huge difference.

This one, you're a totally different world when it comes down to self storage and multifamily. Because now you're seeking month to month rate increases where you can't do with renting a house or a condo, what have you, multifamily. I just want to keep that in mind for everybody. It's a different animal when it comes down to all the money that is actually collected by the individuals renting. So important to remember that.

Bill: It's a service too. Like you said, Trane, you said this earlier, it's a business within the real estate. When I go get my haircut and my hairdresser charges me $30 for a haircut, and then I go next time and it's $35 well, it's not like I'm not going go with a haircut. I'm not going have my wife cutting my hair for me. So it's a service industry.

You're providing a service within the real estate. So to Ben's point, the big difference here is you get to raise the rates, and nobody's going there renting a U Haul, sticking all their stuff there and moving, not for an extra 5 or $10 a month.

Ben: And I'm not talking about killing the people either with the I increases in mean, that's not my point. My point is specifically that you can adjust the the rental rates per month. Every month when somebody moves out or somebody's coming in or or even, like, I own some rental facilities that are not even mine in my buildings. Oh, this is great. They just, like, raise it again out of me.

But I laugh because I know that's the model. That's what the model is. And so I expect that.

Trent: And there's there's, like, dynamic pricing on storage units now, right, where it can change by the hour, if if they're trying to offer these incentives, I've seen and seen online where they're literally adjusting and, and changing the prices by, know, morning to afternoon to evening times, depending on what their what their r and d is telling you that day.

Ben: I, you know, I'm sure they gained it from the food industry because with Swimmingtonals and Wendy's, this is they're all doing. They're changing, you know, by the time you're coming in. And so, yeah, there there you know what? There are so many different models out there that people are doing now.

Trent: Right. I guess my other question on the on the investor side, so a deal start or your pref starts accruing in day one, and, and distributions are typically starting in year three. How long is it taking to complete development and then stabilize that asset in order to get that distribution started in year three?

Bill: So typical construction on the ground up depending on what month you start and you know, in geography, if it's in California or Chicago with weather conditions, it's about twelve months, ten to twelve months of construction. So the first year, obviously, there's no revenue. By the second year, which is really the first year of a full operations, you're still going through that cash not cash flow, but the reserves that you have with the lender. And then by year three, I'd say about six months into it, you're probably at breakeven with your mortgage and your taxes. And by the end of year three, you're now starting to hit that debt cover ratio.

And it really makes a difference when you open up. So if you're opening up in Chicago, again, if I open up in October, I'm going to have slow months. In November, December, January, February, nobody's moving in. Unless you got like Ben and I now, this new one has a drive through that allows people to move more frequently during those months. So it's seasonal as well, so more people are moving in the spring, summer and fall, less in the wintertime.

If you're around college campuses, parents are taking stuff out of the dorms, they're storing it for a few months, so it really depends on where you're at. But average, I would say by the third year by the end of the third year, being one year you lose for construction in two years of full operations, you're able to make distributions.

Trent: And what is what is a debt coverage ratio or requirement on a self storage? I know multifamily, but I don't know what the self storage debt coverage is.

Bill: 1.2.

Trent: Okay, so similar?

Bill: Similar, yeah. I know some lenders have 1.25, but it really depends on the lender. To be honest with you, we're working with lenders as 1.1. So that's great. It really depends on the asset and the lender.

Trent: Absolutely. So I know you guys have some projects currently in the pipeline or in the works. What do you see self storage developers doing aside from completing these current projects? But where do you guys see yourself going over the next twenty four to thirty six months with the business and the developments?

Bill: Ben, you wanna take that

Ben: or do that? We look at, developing three to four projects per year. And, that that's our focus. And we're looking throughout the country. We're looking at, you know, locally, but we're throughout the country.

We're, you know, facilitating, you know, different site different looking at different sites right now. But, you know, definitely growing where we are from right now to then. And Bill, I'm sure can add more to that.

Bill: Sure. We're talking to institutional investors that are looking for a bigger pipeline which we can deliver. So depending the partnerships that we forge, we'll really accelerate our growth. So right now, we have the bandwidth to do it. We have projects already teed up.

We have things in our pipeline that we've been underwriting for a few months now, for 2025, and we have already identified projects for 2026. It's always great to connect with individual investors. It's always great to connect with family offices, funds, stuff like that. We talked to a group this morning. I think they got 2,500,000,000.0 allocated for this 2025 to put out there.

So we hope to be part of that. We just had another conference call with another company much larger that's looking for a bigger pipeline. So it's great. I mean, it's great to see so much cash in this asset because people realize it's a strong asset.

Ben: You know? I'm I'm really psyched that we're definitely in the growth model right now. Absolutely. And there's so much runway right now. You know, there's a lot of being built.

There's a lot definitely storage being built out there and have them built. But because we identify all these different pockets, there's a huge run runway still. And and that's great for us. So if somebody asked me, you know, where you are right now in your business and the growth chart, I would absolutely say a big growth right now. You know?

And so I would love to have people even on your show to, you know, join us in this growth because this is huge. This is like a family to me, and I also to Bill too. And we love to help people out and to grow the business.

Trent: Yeah. And I guess one question that I forgot to ask when we're talking about the deal itself or the deals itself or the benefits, I would say, are the tax benefits associated with it. I know you guys are not tax professionals, we'll throw that out now. But you know, just from a high level, because, you know, real estate is tax efficient for investors and owners. What kind of tax efficiencies or benefits can you get in self storage as an investor?

Bill: Sure. And that's better than a multifamily because you have moving parts. You've got those doors that go up and down that can break down, or you could take them and move them. So there is a bonus depreciation. On the car washes, was called an accelerated depreciation.

But you have a bonus depreciation. You have a 179D that is really for energy efficiency that you can take as a depreciation. There's solar tax credits and carbon tax credits, so the Palmdale one, we're talking about maybe putting solar on the canopies there. But we usually hire a firm that'll do a cost seg on that and put together the whole package for our accountants. And we just had one done, actually, which was just delivered to us a couple of days ago.

And they're basically on a $4,000,000 raise, they're saying that the investor, whoever writes that check, is getting about 25% back on that on the first year on their bonus depreciation. So somebody that has a tax liability in 2026, they want to put it in self storage, that's a perfect place to put it. Yeah. Because you can write that off.

Trent: Absolutely. My partners and I have talked a lot about tax benefits and efficiencies lately and strategies. And so I wanted to bring that up more selfishly because I'm curious to learn about other

Ben: I appreciate it. I appreciate you doing that. I mean, we can talk about the taxes and the tips and the seven B's for property, but the self taxes, yeah, you can definitely benefit from that. And that's why a lot of people go with self storage because of that. And

Bill: we give 100, even if we were to keep 40% of the project or 50% of the project, 100% of the depreciation, operating losses, and then the bonus depreciation or the $179 that all goes to the investors. So we didn't even talk about your typical depreciation above and beyond the bonuses. We're not even talking about the operational losses, interest expense, everything that you're writing off, everything's a loss, and that flows to the K-one. Now granted, when you sell it, you're going to recoup that, but the investors are looking today because they have some other capital gain or they have some other passive income that they need to pay taxes on it, they can park it in self storage. And you're parking it with a REIT, right?

Even though Ben and I are not a REIT, it's being operated as a REIT by a REIT. So it's institutional grade, in my opinion.

Trent: Yeah. That's awesome. Well, Ben and or Bill, do you guys have anything else to add for our listeners from our conversation today?

Ben: No. I I think just, you know, we have that wealth bus, you know, chugging along. I would love to, you know, have everybody to, you know, get on our bus before it takes off. You know, that that that's that's about it. You know, if anybody needs to reach out to us, I you know, we would love to have them reach out to us.

You know, any questions or, you know, thoughts or even opinion on what we just said, that would be great. And Bill can give us our information.

Bill: Yeah.

Ben: But, yeah, I'd love to have that.

Bill: Ben, all jokes aside, I'm part of a charity that I co founded fourteen years ago, and Ben's an elected trustee at the college. It's about giving back to people in community. Ben has implemented some really great strategies at the school for job training. We were just talking recently with the mayor of a town of the new programs you put in place. And at the end of the day, it's about people.

We all want something out of life. We all have our families and our children, we all want to retire one day. So we're trying to provide some opportunity for people for that and also give back to the community through some of the charity work that we do and the job training that Ben is creating. So it's really about people. So when we joke about jump on the train with us, we want to help people.

We like people, and if we can work with good people, it's a great thing. It's a win win for all of us.

Trent: Absolutely. And how can people how can people get ahold of you if they like to?

Bill: So easy email to remember is info@self-storagedevelopers.com. So infoself dash storage developers dot com.

Trent: Awesome. Well, Bill and Ben, thank you so much for joining us and having a conversation with me today.

Ben: Thank you, Trent, for this opportunity. Thank you.

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