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Unconventional Real Estate Investments: Masters in Business with Bob Moser · Masters in Business

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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is Masters in
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Speaker 1: Business with Barry Ritholts on Bloomberg Radio.
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Speaker 2: This week on the podcast, What a Fascinating Conversation. Bob
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Speaker 2: Moser is founder and CEO of Prime Group Holdings. They're
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Speaker 2: the largest privately held self storage owner operator investor in
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Speaker 2: the country. Fascinating conversations. Started acquiring properties in college, eventually
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Speaker 2: started doing RVs and mobile homes, just really fascinating methodology
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Speaker 2: of identifying undervalue properties. I thought the conversation was fascinating,
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Speaker 2: and I think you will also with no further ado.
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Speaker 2: Bob Moser of.
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Speaker 3: Prime Group Holdings, Thanks for having me.
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Speaker 2: So let's start out with you. Your background, Bachelors with
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Speaker 2: honors and economics from Union College. Yes, sir, what was
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Speaker 2: the original career plan?
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Speaker 3: Tell you the truth? It was always real estate. So
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Speaker 3: I've always had an affinity for real estate.
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Speaker 2: Really.
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Speaker 3: My mom tells the story that when I was like
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Speaker 3: fourteen or fifteen, should drop me off at the local
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Speaker 3: real estate broker's office and I would drive them nuts
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Speaker 3: for a couple hours. And it was either that or
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Speaker 3: just to get rid of me out of her hair, probably,
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Speaker 3: but I always had it. Got my real estate license
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Speaker 3: before college. I got my brokerage license while at college
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Speaker 3: and actually started the business basically my sophomore junior year
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Speaker 3: while at Union.
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Speaker 2: Wow, that's amazing. So your college thesis focused on how
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Speaker 2: to value income producing real estate investments by comparing demands
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Speaker 2: and value, like, so you really knew exactly what you
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Speaker 2: wanted to do by your senior year. What was the
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Speaker 2: outcome of that college thesis?
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Speaker 3: It's a good question. So it was on the valuation
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Speaker 3: of income producing properties using hadonic and non handonic regression analysis.
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Speaker 2: So when we say hadnic, you're adjusting for quality.
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Speaker 3: Location, attributes of the property, taking away basically the revenue
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Speaker 3: stream what else adds value to the asset? And I
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Speaker 3: was really hyper focused on fragmented real estate assets. So
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Speaker 3: basically every real estate asset when you look at it,
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Speaker 3: goes through the same life cycle when they're originally owned, developed,
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Speaker 3: managed by local regional developers. Then over time the larger
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Speaker 3: groups come in and consolidate. So I was looking for
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Speaker 3: that reflection point when that consolidation starts. And I was
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Speaker 3: focused back then in college on the thesis for manufactured
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Speaker 3: housing communities. And when you're a college student, you know
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Speaker 3: people pick up the phone when you call because they're
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Speaker 3: always trying to help somebody out. And I was very
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Speaker 3: fortunate to speak to Sam Zell and some other obviously
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Speaker 3: leaders in the real estate business, and they gave me
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Speaker 3: some great insight, and one of the ones he said
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Speaker 3: to me was that there's a lot of buyers, but
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Speaker 3: there's not much product out there. You have to go
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Speaker 3: out and find product for people. If you're going to
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Speaker 3: be a good real estate investor, you have to have
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Speaker 3: the ability to find the assets. So I decided to
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Speaker 3: start a company in college to facilitate that transaction. Obviously,
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Speaker 3: I didn't have any money. My dad was a retired
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Speaker 3: New York City detective. My mom was a teacher's aid,
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Speaker 3: so I didn't grow up any wealth. But I figured
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Speaker 3: out that if I could find good product, there was
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Speaker 3: a numerous amount of buyers to buy it. And I
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Speaker 3: did this by using the Freedom Information Act of New
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Speaker 3: York and then various other states, where I figured out
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Speaker 3: that I could track all real estate asset classes using
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Speaker 3: the same common denominator of water and sewer permitting. So
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Speaker 3: I went down the Albany and I made my request
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Speaker 3: and union was trimester, so I had these big gaps
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Speaker 3: off around Thanksgiving the New Years, and one day ups
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Speaker 3: knocked at my door and I had converted my parents
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Speaker 3: upstairs bedroom to my corporate office, like any kind of
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Speaker 3: broke entremneur would do. And he's like and hit me
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Speaker 3: a box. I'm like, oh, there's my real estate information.
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Speaker 3: And he's like, actually, that truck out there is. I
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Speaker 3: had boxes and boxes of the old doss printouts every
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Speaker 3: self storage facility, every mobile home park, every RV park,
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Speaker 3: Marina multi family.
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Speaker 2: Just so some of the younger listeners can appreciate this,
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Speaker 2: forget Ai. This is really before there was any sort
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Speaker 2: of usable internet where you could say, hey, let me
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Speaker 2: scan Andy dot gov and find all the real estate permitting.
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Speaker 2: This is physical papers stored in physical office buildings and
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Speaker 2: file cabinets.
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Speaker 3: I had a pay per page on the pronoun.
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Speaker 2: And what did that cost? And how long ago is this?
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Speaker 3: So this was back in ninety seven, ninety six, ninety seven.
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Speaker 3: It probably cost me a couple hundred dollars, which I
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Speaker 3: really didn't have as a college student. But I realized
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Speaker 3: quickly that that information was the key to finding assets.
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Speaker 3: And what I would do is I would systematically go
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Speaker 3: through these lists basically county by county, asset type by
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Speaker 3: asset type, identifying the institutional quality assets that were still
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Speaker 3: loaned by mom and pops or non institutional investors. I
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Speaker 3: would do a deep dive on those assets. I would
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Speaker 3: call and get the rents. I would call the tax
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Speaker 3: assessor to get the real estate taxes. My goal was
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Speaker 3: to know more about the real estate than the owner
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Speaker 3: did by the time I called them on the phone
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Speaker 3: to see if they'd be interested in selling, and then
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Speaker 3: I would continually call them every thirty to forty five
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Speaker 3: days after that until they became a seller.
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Speaker 2: Huh, that's unbelievable. So that's what led you to unconventional
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Speaker 2: and overlook segments. You mentioned marinas and RV parks and
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Speaker 2: other things like that. Manufactured homes. How long did it
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Speaker 2: take you before you managed to acquire your first property?
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Speaker 3: So there was a acquired my first property shortly after college.
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Speaker 3: And what happened was there was a mobile home park
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Speaker 3: in Streetsboro, Ohio. It was actually called Camelot Village. Again.
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Speaker 3: A guy named Mike Duffy owned it, and I used
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Speaker 3: to call mister Duffy probably every thirty days to see
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Speaker 3: if he would sell his asset, and one day I
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Speaker 3: finally got him to sell and I made a nice
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Speaker 3: fee on the transaction, but I still needed a little
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Speaker 3: bit more. In the year I graduated, my mom took
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Speaker 3: a home equity loan against the family house.
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Speaker 2: Is that how you finance?
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Speaker 3: That's how acquisition. That's how I financed my first acquisition.
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Speaker 3: So before that I was facilitating transaction to making fees,
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Speaker 3: almost like a broker, but not a listing broker. And
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Speaker 3: then the first asset I bought was when my parents
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Speaker 3: took a home equity loan.
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Speaker 2: So if in you mentioned you got your real estate
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Speaker 2: license in college, how you finding buyers for these sortive,
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Speaker 2: unconventional properties. Are you going to the big institutions and saying, hey,
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Speaker 2: I have a property that fits into your portfolio.
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Speaker 3: And what I actually did was I had these lists
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Speaker 3: obviously that I got from the foil request, and I
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Speaker 3: kept on seeing the same name show up as buyers
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Speaker 3: or that were owners. So if I knew they owned
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Speaker 3: five assets in that particular region, I thought, Hey, if
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Speaker 3: I developed when or I get a relationship with a
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Speaker 3: seller that would sell, I would bring it to that.
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Speaker 2: You knew where to bring it?
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Speaker 1: Huh?
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Speaker 2: Really, really, quite fascinating. And so when did you found
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Speaker 2: your own real estate brokerage farm?
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Speaker 3: So that was basically in college. So I was in college.
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Speaker 3: That was in college I became a real estate broker.
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Speaker 3: Before college, I was a licensed salesperson and then you
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Speaker 3: have to have X amount of hours under your belt
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Speaker 3: before you can become a brokerage. And I've got my
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Speaker 3: brokerage license in ninety seven.
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Speaker 2: So how long did you do that as a as
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Speaker 2: a broker rather than an investor? Or? They coon of
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Speaker 2: around parallel path.
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Speaker 3: No, so I was basically working exclusively for generating fees
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Speaker 3: from like ninety seven to two thousands, two thousand and one.
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Speaker 3: I started buying my first asset around two ninety nine,
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Speaker 3: going into two thousand. Obviously the first one I bought.
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Speaker 3: It took me a while obviously to give up the
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Speaker 3: transactional side until I could support myself on owning assets.
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Speaker 2: So you ramp up various assets until twenty thirteen when
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Speaker 2: you start Prime group. Was that the path?
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Speaker 3: So what I did was so my mom took the
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Speaker 3: home equity loan my parents did against their home. The
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Speaker 3: first asset I bought, actually I had sold to that
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Speaker 3: gentleman ten months prior and I called them up and
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Speaker 3: I said, hey, you know, Wayne, I sold you this
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Speaker 3: property was on Cape Cod, would you be interested in
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Speaker 3: selling it? And I sold it to him for three million.
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Speaker 3: He ended up selling it to me for five million
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Speaker 3: ten months eailier and then I moved up to Cape
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Speaker 3: Cod and I actually ran the asset for the first
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Speaker 3: two years to see how the business worked, because I
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Speaker 3: didn't want to be that owner that would tell people
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Speaker 3: what to do without actually being able to do it themselves.
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Speaker 3: And then I bought my second property, and then I
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Speaker 3: bought my third, and then by two thousand and five
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Speaker 3: August twelve, two thousand and five, I had a large
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Speaker 3: liquidity event. I sold a group of assets to Sam Zell.
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Speaker 3: That's when he converted MHC, which was manufactured housing communities
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Speaker 3: his rate to equity lifestyle communities and he started to
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Speaker 3: focus on RV parks. So on that date I sold
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Speaker 3: him roughly five assets back then, which provided a substantial
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Speaker 3: amount of liquidity to myself, and I went out and
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Speaker 3: did a bunch of That's when I really started to
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Speaker 3: build the portfolio.
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Speaker 2: So I want to draw a line. So you're a
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Speaker 2: college kid randomly calling big real estate investors, including Sam
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Speaker 2: Zel who took your phone call, took my phone call
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Speaker 2: and you had a long conversation with did they did?
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Speaker 2: And so how many years later it's like, hey, Sam,
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Speaker 2: it's me Bob. Do you remember me? I have some
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Speaker 2: assets for you.
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Speaker 3: It was funny when you say that, because when I
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Speaker 3: was dealing with the CEO. There's a CEO at the time,
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Speaker 3: I always wanted because I never really spoke to him
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Speaker 3: then after so I wonder if you'd actually put two
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Speaker 3: and two together. I'm sure he did, But it was
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Speaker 3: it was a really interesting transaction, you know. It was
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Speaker 3: the RV world was an interesting business, the RV parks.
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Speaker 3: It was basically I was the first one to really
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Speaker 3: use securitize financing in the RV park world. That hadn't
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Speaker 3: been really done prior. So it was. It was an
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Speaker 3: interesting time.
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Speaker 2: So now you have a liquidity event, you're tapping into
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Speaker 2: Wall Street securitization, all the funnes. How at what point
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Speaker 2: do you say, oh, there's a ready source of capital.
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Speaker 2: I could just put a roll up strategy together and
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Speaker 2: run all of these properties more of efficiently. Then mom
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Speaker 2: and Pops can do. Every one of these would have
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Speaker 2: to have a separate accounting and a separate tax filing
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Speaker 2: and all that stuff. You centralize that and suddenly it's
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Speaker 2: productive and efficient one.
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Speaker 3: Hundred percent what I So, basically, from let's say two
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Speaker 3: thousand through two thousand and five two thousand and six,
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Speaker 3: I was acquiring a lot of mobile homr V parks.
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Speaker 3: I also owned shopping centers, a little bit of everything.
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Speaker 3: It was a pretty diversified portfolio. And what really transitioned
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Speaker 3: to me to become an asset specialist, which we are now,
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Speaker 3: was how well self storage was doing during the first
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Speaker 3: financial crisis. I was doing a year in portfolio review
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Speaker 3: in around two thousand and seven two thousand and eight,
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Speaker 3: and the self storage assets were a smaller part of
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Speaker 3: my portfolio back then, but they were outperforming everything else
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Speaker 3: at that time. It wasn't like they were going, you know,
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Speaker 3: straight up, but they were so defensive and they were
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Speaker 3: doing so well when all these other assets were getting
10:53
Speaker 3: beat up. And I decided at that point to become
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Speaker 3: an asset specialist stingularly focus on self storeage. So I
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Speaker 3: sold off Over the next few years, I sold off
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Speaker 3: the rest of the mobilehome in RV parks. I had
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Speaker 3: multifamily that went to third party management, and from that
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Speaker 3: time forward, I continued just to consolidate self storage. This
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Speaker 3: was on my own balance sheet at this time, and
11:15
Speaker 3: then I started the co mingled fun business around twenty
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Speaker 3: and fourteen. So from basically two thousand and seven two
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Speaker 3: thousand and eight through twenty and fourteen, I was using
11:23
Speaker 3: my own capital or in house capital to acquire these assets.
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Speaker 2: So I'm curious why would self storage do well during
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Speaker 2: the financial crisis. Was it literally people were losing their homes,
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Speaker 2: they had to figure out where all their stuff had
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Speaker 2: to go, or what was happening in that period that
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Speaker 2: made that such a standout performer.
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Speaker 3: I would say it was more the defensive nature of it,
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Speaker 3: wh were these other assets were decreasing dramatically. Storage was
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Speaker 3: holding its own and its need based real estate. I
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Speaker 3: do not buy aspirational real estate. I think that's where
11:53
Speaker 3: a lot of people get in trouble. I buy real
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Speaker 3: estate that people need for all different economic cycles, and
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Speaker 3: that's what self storage is. You know, it's upgrades, downgrades, death, divorce,
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Speaker 3: all of those type of life cycles or some that
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Speaker 3: happens in life creates some need for storage.
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Speaker 2: It seems like you are in a variety of different
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Speaker 2: regions everywhere from Saratoga to Springs to Chelsea. Here in
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Speaker 2: New York City, how do your underwriting assumptions differ relative
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Speaker 2: to is this urban? Is this suburban? Is it ex urban?
12:27
Speaker 2: Is it out in the Styx? How do you look
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Speaker 2: at these different spaces? Obviously valuations differ, in rents differ.
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Speaker 2: What's the thought process?
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Speaker 3: So we truly obviously real estate. That's some cliche, but
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Speaker 3: it's location, location, locations. So if you look at our portfolio,
12:44
Speaker 3: it basically you take the United States and it looks
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Speaker 3: like a U. So we're up and down the coasts
12:50
Speaker 3: where right now we don't have exposure in Texas. And
12:53
Speaker 3: the reason why is that there's a lot of open
12:56
Speaker 3: zoning in Texas and one of our major requirements is
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Speaker 3: barriers to entry. And the reason why we're along coastlines
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Speaker 3: and then we're up picking up in the mountain cities
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Speaker 3: out in like Utah and Colorado is that there's a
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Speaker 3: barrier that's natural barrier keeping the population tight to a nucleus.
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Speaker 3: So we want to be in predictable downtown retail corridors
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Speaker 3: when we're choosing the asset. So that's the first glance
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Speaker 3: over deciding where we're going to buy. Then it goes
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Speaker 3: down to what is the supply, what's going to constrain
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Speaker 3: the supply in that particular market, because like any other
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Speaker 3: type of real estate, there's always areas that are oversupplied,
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Speaker 3: and the key is finding these areas that are undersupplied.
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Speaker 3: When I was first doing this with paper, it was
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Speaker 3: a lot of obviously calling on the phone, calling the assessor,
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Speaker 3: feeling the market out, visiting. Now we have built very
13:40
Speaker 3: sophisticated software that helps us pre identify these areas that
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Speaker 3: we should be buying, not even the area, the exact
13:46
Speaker 3: asset we should be buying, even though it's not for sale.
13:50
Speaker 3: So we built out this program where it basically I
13:52
Speaker 3: can put in our buybox and it populates out of
13:55
Speaker 3: the sixty thousand self storage facilities in the country the
13:58
Speaker 3: ones we should go after though they're not for sale.
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Speaker 3: And then what we have is our deal teams, which
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Speaker 3: are a group of roughly three dozen people internally that
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Speaker 3: we allocate the deals that fit our criteria to and
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Speaker 3: then they continue to call and visit those owners until
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Speaker 3: we convert them to sellers. So we truly buy everything
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Speaker 3: off market and it's one organically originated.
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Speaker 2: Huh really really fascinating. Coming up, we continue our conversation
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Speaker 2: with Bob Moser, CEO of Prime Group Holdings, discussing the
14:28
Speaker 2: prime storage business. I'm very results you're listening.
14:32
Speaker 4: To Masters in Business on Bloomberg Radio. I'm very results
14:44
Speaker 4: you're listening to Masters in business on Bloomberg Radio. My
14:47
Speaker 4: extra special guest this week is Bob Moser. He is
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Speaker 4: the CEO of Prime Group Holdings, specializing in privately held
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Speaker 4: self storage commercial real estate. The firm has acquired over
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Speaker 4: ten billion dollars in real estate assets across three hundred
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Speaker 4: and fifty locations, twenty eight states, Canaona, and the Virgin Islands.
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Speaker 4: So let's talk a little bit about the business model
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Speaker 4: of self storage. I see these areas popping up everywhere.
15:18
Speaker 4: I see these self storage facilities popping up everywhere.
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Speaker 2: How widely used are they? How profitable are they versus
15:26
Speaker 2: you know, traditional commercial real estate? What is the appeal
15:31
Speaker 2: that just over the past ten twenty years this space
15:34
Speaker 2: has exploded.
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Speaker 3: It's a great question. So self storage has the lowest
15:39
Speaker 3: break even occupancy of any institutional real estate asset class
15:43
Speaker 3: I can think of, So at forty percent occupied, your
15:46
Speaker 3: break into even on expenses. So there it's very risk adverse.
15:50
Speaker 3: It's a very risk adverse asset from top to bottom.
15:53
Speaker 3: When you're looking at how what the tenant signs to
15:56
Speaker 3: become a tenant. These are month to month leases, so
15:58
Speaker 3: we can adjust to what's happening in the macro environment
16:01
Speaker 3: at any given time. There's no lease risk whatsoever in
16:04
Speaker 3: the asset class.
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Speaker 2: So no lobby, no doorman, no no door showers to
16:09
Speaker 2: none of the things that multifamily.
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Speaker 3: Correct makes so expense Well, you think about a multifamily.
16:14
Speaker 3: If you're gonna turn a unit, it's gonna cush you
16:15
Speaker 3: anywhere from let's say fifteen hundred to five thousand, depending
16:18
Speaker 3: on what you're doing. Self storage is five dollars. We're
16:21
Speaker 3: sweeping it and replacing a light bulb if there is one.
16:23
Speaker 3: So and ten. Improvement is what really hurts, especially office,
16:27
Speaker 3: but a lot of real estate assets. You're constantly chasing
16:30
Speaker 3: that capital improvement.
16:33
Speaker 2: Really really quite interesting. What about ancillary revenue streams? We've
16:36
Speaker 2: all seen those silly reality shows where they find these
16:41
Speaker 2: you know, someone abandons the unit and they find some
16:44
Speaker 2: million dollar painting in there. How much nonsense?
16:46
Speaker 3: Yeah, I haven't had that look, but the h it's
16:49
Speaker 3: funny that you bring that up. So prior to those
16:51
Speaker 3: TV shows, we would have the auctions on site, kind
16:55
Speaker 3: of like you see in those the TV shows. What
16:58
Speaker 3: happened though, everybody all of a sudden started showing up
17:00
Speaker 3: to these had a personality they thought they were on TV.
17:03
Speaker 3: The traffic became overwhelming on the asset. So everything now
17:06
Speaker 3: was virtual. So when we have an auction, it's all
17:08
Speaker 3: done online and it's not a revenue source for the business.
17:12
Speaker 3: So we put our properties through a five step value
17:14
Speaker 3: creation process, and one of those steps is diversifying the
17:18
Speaker 3: revenue stream. And it's a great question because there's a
17:21
Speaker 3: substantial amount of value picked up in self stores through
17:23
Speaker 3: these ancillary revenue streams. One of them is a tenant
17:26
Speaker 3: protection program where the tenants are able to push the
17:30
Speaker 3: liability of a storm or something happening to their goods
17:33
Speaker 3: onto the landlord for paying a certain price. There's obviously
17:36
Speaker 3: there's prime access if you need access past the operating hours.
17:40
Speaker 3: So let's say you need access twenty four hours a day.
17:42
Speaker 3: You're a small business, you can pay for that. So
17:45
Speaker 3: these items obviously add up when you have two to
17:48
Speaker 3: three hundred thousand units like we currently operate.
17:50
Speaker 2: I hadn't even thought about the idea of a storm.
17:53
Speaker 2: So you live near a coast, there's a big hurricane coming. Hey,
17:57
Speaker 2: I have a bunch of furniture and I want to
17:59
Speaker 2: get soaked. If we're if we're swamped, let's move an
18:02
Speaker 2: inland to a storage area.
18:04
Speaker 3: And that's and God forbid something happens to their home.
18:08
Speaker 3: You know, obviously a lot of stuff gets moved into
18:10
Speaker 3: the storage facility.
18:11
Speaker 2: So you, you guys are the largest privately held self
18:14
Speaker 2: storage set of ownership. What's the competition, Like, I know,
18:19
Speaker 2: I know Blackstone is in here. We see cubes everywhere,
18:23
Speaker 2: we see public storage. Who are your big competitors? And
18:27
Speaker 2: is there an eventual play where someone takes you out?
18:30
Speaker 1: Correct?
18:31
Speaker 3: So there's the group of public companies that you were
18:34
Speaker 3: just mentioning. You have extra space, you have public storage,
18:36
Speaker 3: you have cubesmart U Hall and you all.
18:39
Speaker 2: I didn't even think of you all that exactly.
18:41
Speaker 3: Most people think I'm just at the moving rights, but
18:43
Speaker 3: obviously they own a substantial amount of self storage. Substantial amount.
18:47
Speaker 3: What we do differently is we operate differently. We have
18:50
Speaker 3: a different I would say rationale when it comes to
18:52
Speaker 3: operating compared to the reats, where the reats are highly
18:55
Speaker 3: focused on occupancy, they want to keep their occupancy of
18:59
Speaker 3: ninety ninety two percent, where I'll trade occupancy for top
19:03
Speaker 3: line revenue. So what we'll do is in the off
19:06
Speaker 3: season when it's slower, we'll hold our rents, create some occupancy,
19:10
Speaker 3: and then come spring when the season's busier, we have
19:13
Speaker 3: room to put the higher payers in. Where the rates
19:15
Speaker 3: are more focused on keeping that occupancy steady at ninety two,
19:18
Speaker 3: then come spring they have no room to put those
19:20
Speaker 3: people in. So we really focus on driving the value.
19:23
Speaker 3: We've looked at what works over the last twenty years
19:26
Speaker 3: and then we've just implemented it on scale across the portfolio.
19:30
Speaker 2: And then the related issue I see are the mobile
19:33
Speaker 2: pods people sometimes use. Seems sort of adjacent to the space.
19:38
Speaker 2: What are your thoughts on that?
19:39
Speaker 3: So we're not in that business. It's a lot more
19:42
Speaker 3: labor intensive.
19:43
Speaker 2: You got to physically drop the pod off and come
19:46
Speaker 2: collect it later.
19:47
Speaker 3: Correct. So in storage, one of the main benefits is
19:49
Speaker 3: there we take no abailment risk, so we're never taking
19:52
Speaker 3: possession of the person's goods. Where the pod, you start
19:55
Speaker 3: to cross that line a bit. So on the storage,
19:58
Speaker 3: it's one hundred percent the consumers or the clients' possessions.
20:02
Speaker 3: We have no contact with it. They put their lock
20:04
Speaker 3: on it, they're the only one that has access to it.
20:07
Speaker 3: Were one hundred percent hands off.
20:10
Speaker 2: So this really went from kind of a niche to
20:13
Speaker 2: a mainstream investment class over the past couple of years.
20:17
Speaker 2: You were really early in this space. What did you
20:19
Speaker 2: see that are those miss and what do you think
20:22
Speaker 2: a lot of commercial real estate investors don't quite understand
20:26
Speaker 2: about this space?
20:27
Speaker 3: It was the fragmentation again, the first fragment assets I
20:30
Speaker 3: was focused on with the mobile home parks and RV parks,
20:33
Speaker 3: which I saw starting to consolidate, and then obviously how
20:36
Speaker 3: well storage did during those tougher times, which really led
20:39
Speaker 3: me to the storage being highly fragmented. When I first
20:42
Speaker 3: entered the asset class, even back in around twenty and
20:45
Speaker 3: fifteen twenty fourteen, it was roughly eighty percent still owned
20:49
Speaker 3: by mom and pops. Wow, so just the reach and
20:52
Speaker 3: the institutionals only owned twenty percent of the the outstandings.
20:55
Speaker 3: Today it's probably closer to seventy seventy five percent, So
20:58
Speaker 3: there's been a lot of consolidations. But what's interesting about
21:01
Speaker 3: storage is that the new supply coming online is being
21:04
Speaker 3: brought online by what we call merchant builders. So there
21:08
Speaker 3: are regional developers who have an extra piece of land,
21:11
Speaker 3: they're shopping center developers who put a storage up on
21:14
Speaker 3: that corner lot or that key lot they might have.
21:16
Speaker 3: It's not the large institutions building the supply, so it
21:20
Speaker 3: keeps it pretty fragmented. So they're the ones adding the
21:22
Speaker 3: new supply to the market.
21:25
Speaker 2: That's really kind of interesting. So a couple of years ago,
21:28
Speaker 2: you did a raise a couple of billion dollars from
21:32
Speaker 2: outside investors. Seems like that's a good chunk of money
21:36
Speaker 2: to go out and start either buying or building. How
21:39
Speaker 2: do you look at the two options?
21:41
Speaker 3: So we don't like taking construction risks, so I like
21:45
Speaker 3: that we buy cash looan so day one for an
21:48
Speaker 3: asset to make it through our ic committee, we have
21:51
Speaker 3: a very high threshold, and that part of that threshold
21:53
Speaker 3: is cash flow. We pride ourselves on being able to
21:56
Speaker 3: distribute free cash flow to our investors pretty early in
21:59
Speaker 3: the fund is life, even during the investment period, which
22:02
Speaker 3: is pretty rare. But the fun business started in actually
22:06
Speaker 3: twenty fifteen as a smaller fund. Up until that point
22:10
Speaker 3: I had only purchased on my own capital, and we
22:13
Speaker 3: did a test fund that did very well. Was a
22:15
Speaker 3: smaller fund. It was only one hundred and fifty four million,
22:18
Speaker 3: and then the second fund we grew it to seven
22:20
Speaker 3: hundred and twenty five million, and then the third fund
22:22
Speaker 3: is when you're referring to, is roughly two and a
22:24
Speaker 3: half billion dollar fund.
22:26
Speaker 2: So why go to outside investors rather than go the
22:29
Speaker 2: securitize route? Is it that much less expensive to do?
22:33
Speaker 2: It was?
22:33
Speaker 3: Basically it's a it's scale play. So I knew them
22:36
Speaker 3: as a class was going to consolidate quickly once the
22:39
Speaker 3: other the large institutions understood it better, or when the
22:43
Speaker 3: origin investors did, and I wanted to have that foothold
22:46
Speaker 3: in the market, and the best way to do it
22:48
Speaker 3: was through the comingled fund way where and also by
22:51
Speaker 3: doing that, I think we were able to disrupt things
22:53
Speaker 3: a bit because we pride ourselves on delivering what we
22:56
Speaker 3: call entrepreneurial type returns. We are operators, are in the
23:00
Speaker 3: field on a daily basis, we're in the office grinding
23:03
Speaker 3: this out. So we try to deliver direct property level
23:05
Speaker 3: returns to our investors.
23:08
Speaker 2: So not hands off like correct numbers. So let's you
23:13
Speaker 2: mentioned your investment committee walk us through the typical acquisition.
23:18
Speaker 2: How do you source these things? Is it still just
23:21
Speaker 2: calling people up and saying hey, let us know when
23:23
Speaker 2: you want to sell and following up and then what's
23:26
Speaker 2: the process like through the investment committee.
23:28
Speaker 3: So this is where it takes the correct personality to
23:32
Speaker 3: be this part of the team. And these are what
23:34
Speaker 3: we call our deal team members. So what we use
23:36
Speaker 3: is our proprietary software we have developed in house that
23:40
Speaker 3: we load our entire buybox into this software and it
23:44
Speaker 3: projects it's an AI system every self storage that fits
23:47
Speaker 3: that criteria in the country, and it has every data
23:50
Speaker 3: point about that asset, the owner, how big it is,
23:53
Speaker 3: the tax is, the rate, everything you can imagine. Then
23:56
Speaker 3: we allocate that deal to the deal team member that
23:58
Speaker 3: covers that area. Then he or she continues to call
24:01
Speaker 3: that owner every thirty to forty five days until we
24:03
Speaker 3: convert them to a seller. So some of these deals
24:06
Speaker 3: that we're buying today we've been working on for a
24:08
Speaker 3: decade and we finally got the seller to the point
24:11
Speaker 3: to sell. So it's a very thick, skinned long relationship.
24:15
Speaker 3: But it's a numbers game. So if we have thirty
24:18
Speaker 3: six people with good information calling these owners, and the
24:21
Speaker 3: reason why we do so much upfront information is we
24:25
Speaker 3: want to know more about the asset than the seller
24:27
Speaker 3: does in a way, because we want to separate ourselves
24:29
Speaker 3: from anybody else calling them. We want to show that
24:32
Speaker 3: we're sincerely interested in buying their asset when we were
24:34
Speaker 3: able to tell them, you know, or even educate them
24:37
Speaker 3: about their own asset.
24:38
Speaker 2: At times, so I get calls from an emails from
24:41
Speaker 2: private equity guys, Hey, do you guys want to sell?
24:43
Speaker 2: Blah blah blah. It's like it gets annoying at a point.
24:47
Speaker 2: What's the conversation like with a seller, Hey spoke to
24:51
Speaker 2: you back in October, just checking in seeing if anything changes.
24:56
Speaker 2: How receptive are people to this?
24:57
Speaker 3: So it's more than And I get those same emails
25:00
Speaker 3: and it drives me nuts. Or the phone call, will
25:01
Speaker 3: you sell your property? I'm like, which property? What area?
25:04
Speaker 3: So when we call, you know we're referring to an
25:06
Speaker 3: exact asset. We've already been by the asset. We know
25:09
Speaker 3: what the numbers are, we know the size of it,
25:11
Speaker 3: we've done, and we might have spent already two weeks
25:14
Speaker 3: researching that asset before we called the owner and instead
25:17
Speaker 3: of somebody just blindly calling you Berry, but if they
25:19
Speaker 3: called you and they knew a lot about you, know,
25:21
Speaker 3: your business, and they knew the numbers are estimated, sometimes
25:24
Speaker 3: you're more intrigued to say, hey, this guy spent the
25:26
Speaker 3: time to learn about But then we visit them on
25:29
Speaker 3: the holidays, we find out when their birthday is, we
25:31
Speaker 3: sent them acart, but it's a constantly being in contact
25:34
Speaker 3: with them, and then we try to solve that problem
25:37
Speaker 3: what they do with the money afterwards? How do they
25:39
Speaker 3: maximize their sale proceeds? And we hold their hand through
25:42
Speaker 3: the process and they become one of our biggest referrals
25:45
Speaker 3: our sellers.
25:46
Speaker 2: Huh, that's amazing. Maximizing returns afterwards. I'm going to assume
25:51
Speaker 2: that's some combination of it's obviously capital gains, there's a
25:55
Speaker 2: bunch of depreciation that comes along. There's a lot of
25:59
Speaker 2: different things a seller can do. I would not have
26:03
Speaker 2: thought that a buyer is going to facilitate that process.
26:07
Speaker 3: We hold there and through it because we want to
26:09
Speaker 3: eliminate any kind of friction. We need to buy assets.
26:12
Speaker 3: We need to buy that asset. Like you said, we're
26:15
Speaker 3: not blindly taking a shotgun and just waiting for something
26:18
Speaker 3: to come to market. We're specifically targeting assets that fit
26:21
Speaker 3: our criteria, so we know which ones make sense until
26:25
Speaker 3: we dive into the actual real you know, initially it's
26:28
Speaker 3: all hypothetical. Until we get the actual numbers from that seller,
26:32
Speaker 3: that's the only time things would change.
26:33
Speaker 2: So this sounds like it's a really unique approach in
26:36
Speaker 2: the commercial real estate is Are you concerned that someone's
26:40
Speaker 2: going to say, Hey, these guys seem to figure it out,
26:43
Speaker 2: let's do what they're doing.
26:44
Speaker 3: Well, we have twenty five year headstart on them, so
26:46
Speaker 3: we have, you know, decades of information gathering, decades of
26:50
Speaker 3: conversations with these sellers. Moreover, it's a heavy lift, it's
26:54
Speaker 3: a burdensome, it's a expensive what I carry on my
26:56
Speaker 3: deal teams. But the reason we do it is because
26:59
Speaker 3: there's no other way to buy assets the way we
27:02
Speaker 3: do and create the value we do. If we were
27:04
Speaker 3: buying them on the open market. You think about it,
27:06
Speaker 3: if we weren't buying it this way, we would be
27:08
Speaker 3: buying it like ninety nine percent of every other asset
27:11
Speaker 3: where it gets brokered. Beautiful pictures are taken, it's presented
27:14
Speaker 3: in its best color, its shot gunned around to one
27:17
Speaker 3: hundred buyers. You go through multiple delayers of bidding, and
27:20
Speaker 3: at the end you'll overpaid for the asset.
27:22
Speaker 2: The winner's curse in an auction situation, exactly. The more
27:26
Speaker 2: buyers there are, the more likely it is the winter
27:29
Speaker 2: over paid hundred percent.
27:30
Speaker 3: So we bypass all that and we go directly to
27:32
Speaker 3: the cellar and we solve problems for them.
27:35
Speaker 2: That's really fascinating. I would not have guessed that degree
27:39
Speaker 2: of complexity, sophistication, and facilitation to the seller.
27:45
Speaker 3: Here's the crazy thing. We're closing six to seven deals
27:47
Speaker 3: a month, so one or two a week on average.
27:50
Speaker 3: When you look at that way, you know we will
27:52
Speaker 3: bundle them up so they all close in a certain
27:54
Speaker 3: maybe couple quarters. But yeah, when you average it.
27:56
Speaker 2: Out, so it sounds like just the prep for you
28:00
Speaker 2: make an offer off if it's a few weeks, it
28:04
Speaker 2: sounds like you're spending tens of thousands, maybe hundreds of
28:07
Speaker 2: thousands of dollars easily.
28:09
Speaker 3: Really, but you think about it, if I don't get
28:11
Speaker 3: that asset today, I might get it in a month.
28:13
Speaker 3: If I don't get it in a month, I might
28:14
Speaker 3: get it next year. If I don't get it next year,
28:15
Speaker 3: We're into this for the long run, you know. We're
28:17
Speaker 3: building a I think, become the best operator of alternative assets.
28:23
Speaker 2: And when you guys raised Fund three, that was the
28:25
Speaker 2: largest dedicated self storage fundraise at the time. I think
28:30
Speaker 2: that was two and a half billion dollars or something
28:32
Speaker 2: like that. Is that still the largest? Have there been
28:36
Speaker 2: other subsequent raises in the self storage space?
28:38
Speaker 3: That's the largest I know if that might have been
28:40
Speaker 3: one of the largest property specific funds raised as well.
28:44
Speaker 3: I've heard that before.
28:46
Speaker 2: And what's the total self storage headcount? That's over three
28:50
Speaker 2: hundred Now.
28:52
Speaker 3: We have over three hundred, close to three hundred and
28:54
Speaker 3: fifty assets. We have around seven or eight hundred employees
28:57
Speaker 3: around the country. We have two main three main offices.
29:01
Speaker 3: Now we have one in Sara, Choga Springs, where we're
29:03
Speaker 3: it's our main headquarters. Then we have one in Jupiter, Florida,
29:06
Speaker 3: and we're just opening an office here in West Chelsea.
29:09
Speaker 2: Really really quite fascinating. Coming up, we continue our conversation
29:13
Speaker 2: with Bob Moser, founder and CEO of Prime Group Holdings
29:18
Speaker 2: discussing the state of commercial real estate today. I'm Barry Ridholts.
29:23
Speaker 2: You're listening to Masters in Business on Bloomberg Radio. I'm
29:36
Speaker 2: Barry Ridolts. You're listening to Masters in Business on Bloomberg
29:40
Speaker 2: Radio and watching Masters in Business on YouTube. My extra
29:45
Speaker 2: special guest this week is Bob Moser. He is the
29:47
Speaker 2: CEO of Prime Group Holdings, the largest privately held self
29:53
Speaker 2: storage investment group in the United States. The over three
29:58
Speaker 2: hundred and fifty locations across on eight states, the US,
30:01
Speaker 2: Virgin Islands, and Canada. I want to talk a little
30:05
Speaker 2: bit about the state of commercial real estate today, but
30:08
Speaker 2: I still have a handful of questions I have to
30:11
Speaker 2: ask you about self storage. You mentioned small businesses are
30:18
Speaker 2: a big customer. I wouldn't have guessed that. What percentage
30:22
Speaker 2: of your units are rented by small businesses and what
30:26
Speaker 2: do they.
30:26
Speaker 3: Use this for? It's a great question. It's probably one
30:28
Speaker 3: of the most overlooked aspects of self storage. Self storage
30:32
Speaker 3: has two demand drivers, which is very unique in real
30:36
Speaker 3: estate in general. You think about residential, do you have
30:38
Speaker 3: residential demand? An office has business demand? Self storage we
30:42
Speaker 3: have both residential and business demand. A lot of people
30:45
Speaker 3: think of self storage. They think of storing their grandmother's couch.
30:49
Speaker 3: It's far from it. That might be one or two percent.
30:52
Speaker 3: The rest is of thirty to forty percent or small businesses, contractors, landscapers,
30:57
Speaker 3: a lot of pharmaceutical reps. So their warehouse. We're the
31:01
Speaker 3: warehouse for that small business that employs the majority of
31:04
Speaker 3: the US population. And what's nice about storage being on
31:07
Speaker 3: a month to month basis the terms of the contract.
31:10
Speaker 3: They can expand or contract as needed with their business.
31:13
Speaker 3: They don't have to sign a long term lease with
31:15
Speaker 3: an industrial or a warehouse. It's a perfect fit for
31:19
Speaker 3: an entrepreneur or a starting business or even a mature business.
31:22
Speaker 1: Huh.
31:22
Speaker 2: Really really interesting, And we were talking previously about self
31:28
Speaker 2: storage isn't covered by the traditional landlord tenant law. This
31:32
Speaker 2: is a much easier set of rules to operate on there.
31:36
Speaker 2: This is a lean lows system. Is that true in
31:38
Speaker 2: all states? Most states?
31:40
Speaker 3: One hundred percent? And actually it carries to Canada as
31:42
Speaker 3: well in parts of Europe that we're looking at. But yeah,
31:45
Speaker 3: and it's basically very similar to like a bank loaning money.
31:48
Speaker 3: They're collateral or the lean against in a particular asset.
31:51
Speaker 3: And that's the way they look at it. And remember,
31:53
Speaker 3: we take, like you're saying, for no abailment risk, so
31:56
Speaker 3: we have no idea what's being stored, what the value is,
31:59
Speaker 3: so that is the collateral to their lease. If they
32:02
Speaker 3: don't pay that, there's an auction process. Obviously, we don't
32:05
Speaker 3: want to auction off anybody's goods. And if let's say
32:08
Speaker 3: we send out fifty auction notices, maybe one or two
32:11
Speaker 3: go because hopefully we can work with that tenant and
32:13
Speaker 3: get them caught up. But it provides a way to
32:16
Speaker 3: collect the rent that's owed. Unlike a multifamily where it
32:19
Speaker 3: might take you a year if you're lucky to fix
32:22
Speaker 3: somebody that's not paying. Self storage is a lot quicker,
32:25
Speaker 3: easier process.
32:26
Speaker 2: And you mentioned Europe. I don't think you have a
32:29
Speaker 2: whole lot of exposure currently in Europe. How big a
32:32
Speaker 2: push are you looking to make on the continent.
32:34
Speaker 3: So we've been doing a lot of digging in figuring
32:37
Speaker 3: out what the different aspects in different cities. You know,
32:41
Speaker 3: it's interesting because some of the owners in Europe, let's say,
32:44
Speaker 3: let's look at London, there will be two or three
32:46
Speaker 3: owners that own the majority of that inventory. Our play
32:50
Speaker 3: again is going out and buying from that one off owner.
32:53
Speaker 3: I really haven't gove into that much, but it's an
32:55
Speaker 3: important aspect to our business is we identify the initutional
33:00
Speaker 3: asset that's still owned by mom and pop, So we
33:02
Speaker 3: target that person that owns one or two facilities, and
33:05
Speaker 3: the reason for that is that they're not a professional operator,
33:08
Speaker 3: and the chances are that we'll be able to achieve
33:10
Speaker 3: our returns, if not better than what we estimated based
33:14
Speaker 3: on putting our systems and processes over that family operated asset.
33:18
Speaker 3: So in Europe they've been consolidated into groups, so it
33:21
Speaker 3: really doesn't provide us that ability to buy assets that
33:24
Speaker 3: we think are highly undermanaged. So we're very risk adverse,
33:29
Speaker 3: so we'd like to see exactly how the value is
33:31
Speaker 3: going to be created. You know, we have a game
33:34
Speaker 3: plan on every asset what levers need to be pulled
33:36
Speaker 3: in order to create that value, and one of those
33:39
Speaker 3: is a lot of the optimization of the rent role,
33:41
Speaker 3: optimization of the actual unit mix, the layout of the facility,
33:45
Speaker 3: and if it's a larger, more professional owner, the chances
33:48
Speaker 3: are those low hanging fruit might not be there. So
33:51
Speaker 3: we're still trying to find the markets that have that
33:53
Speaker 3: fragmentation where they're still one often two off owners, because
33:57
Speaker 3: that is really our bread and butter.
34:00
Speaker 2: In US, laws vary somewhat from state to state, but
34:04
Speaker 2: it's fairly uniform. How different is it country to country
34:08
Speaker 2: in the EU even or the UK.
34:10
Speaker 3: Yeah, but even in the States when it comes to
34:12
Speaker 3: the actual implementation of the lean law, it does. There's
34:15
Speaker 3: different timings, there's different fees that can be charged, There's
34:18
Speaker 3: different things that you do with the proceeds from the auction.
34:22
Speaker 3: Let's say you receive more than what the person owed to.
34:26
Speaker 3: Some of it gets donated away, some of it gets
34:28
Speaker 3: contributed back to that cellar. Depending on the state that
34:31
Speaker 3: extra free proceeds determined and where it goes. So we
34:34
Speaker 3: have a whole legal compliance team that works on this
34:36
Speaker 3: on a daily basis to make sure that each state
34:39
Speaker 3: law is being followed every municipality in the US, every
34:43
Speaker 3: county or every territory in Canada. And that's the research
34:46
Speaker 3: we're doing right now in Europe and in Australia, trying
34:49
Speaker 3: to find the markets where we know we can go
34:51
Speaker 3: in and consolidate get economies a scale out of it,
34:54
Speaker 3: but by the assets the way we want to buy
34:56
Speaker 3: them on this one off way.
34:58
Speaker 2: Really interesting commercial real estates have seen higher rates of costs,
35:07
Speaker 2: interest rates and inflation have been kind of stubborn and sticky.
35:11
Speaker 2: What sort of refinancing stresses does that create? Or are
35:15
Speaker 2: you sidestepping that whole interest rate chase these days?
35:19
Speaker 3: So we're very fortunate being in real estate for as
35:21
Speaker 3: long as we have. We have developed really deep relationships
35:25
Speaker 3: with the large institutional lenders, from City Bank, the GOLOB
35:28
Speaker 3: and the JP, the BMO to Northern Trust. You know,
35:33
Speaker 3: I'm sure I'm missing one. I'll probably get a call
35:35
Speaker 3: after this, but we have very deep rooted relationships and
35:38
Speaker 3: we're relationship oriented, so we're there. We work with these
35:42
Speaker 3: banks and it's a flight to quality during this time
35:46
Speaker 3: where lenders are going to the lenders they have long
35:49
Speaker 3: term relationship and track records with. But we spend a
35:52
Speaker 3: lot of time making sure that we're hedging our interest rates,
35:55
Speaker 3: We're making sure that we're you know, we're putting the
35:57
Speaker 3: right debt on the assets at the right time, you know,
36:00
Speaker 3: making sure we're not cross collaterlyzing too much. So a
36:03
Speaker 3: lot goes into it.
36:05
Speaker 2: I can totally imagine we've certainly seen shifts in demographics
36:11
Speaker 2: with everything from migration and remote work and aging populations.
36:16
Speaker 2: How does that affect demand for commercial real estate, both
36:21
Speaker 2: self storage and other related real estate.
36:24
Speaker 3: For it's a big demand driver for self storage. So
36:26
Speaker 3: when you think about it, people now are living in
36:28
Speaker 3: apartments more. I think I just heard the average the
36:31
Speaker 3: first time home buyers now until like they're forty now,
36:34
Speaker 3: so late forties. It's crazy when it was used to
36:35
Speaker 3: be like twenty eight or twenty six. So obviously they
36:38
Speaker 3: live in smaller apartments. They need place to put their stuff,
36:41
Speaker 3: they need storage. Storage is almost like a trade off.
36:44
Speaker 3: Is it that extra bedroom that might cost you five
36:47
Speaker 3: hundred dollars a month or is it a storage for
36:49
Speaker 3: seventy five dollars a month? You know, so it's always
36:51
Speaker 3: a trade same thing with an office. Is it that
36:53
Speaker 3: bigger office where you can have stuff on site or
36:56
Speaker 3: do you supplement it with a less expensive at the
36:58
Speaker 3: self storage. So this goes back to self storage being
37:01
Speaker 3: a need based real estate and this is why during
37:04
Speaker 3: tougher times, the aspirational real estate are the ones that
37:07
Speaker 3: take the hit. Like we've seen an office lately.
37:09
Speaker 2: Yeah, speaking of office, we've seen a lot of underutilized
37:14
Speaker 2: office properties. Work from home continues, hybrid working continues. How
37:19
Speaker 2: is that affecting what you're doing? I just related to this.
37:24
Speaker 2: I just saw a piece in the Wall Street Journal
37:26
Speaker 2: this week that there has been a sudden surge of
37:32
Speaker 2: office to residential conversions in Lower Manhattan, which two years
37:36
Speaker 2: ago everybody said, oh it's too expensive, it's true time consuming.
37:40
Speaker 2: Do you track that sort of stuff? What sort of
37:42
Speaker 2: impact does that happen.
37:42
Speaker 3: We're actually working on one of those now, Oh really
37:45
Speaker 3: it is. That's pretty interesting.
37:46
Speaker 2: We so commercial office to residential real estate.
37:49
Speaker 3: So what it was was there was a group of
37:52
Speaker 3: assets in West Chelsea that we ended up buying that
37:56
Speaker 3: one of them, by actually two of them by right,
37:58
Speaker 3: could be self storage. We're converting into a high end
38:01
Speaker 3: storage of the future, we're calling it, and I can
38:04
Speaker 3: go into that more modern a lot of technology driven
38:07
Speaker 3: self storage. And the other part of the project was
38:10
Speaker 3: a ninth story building that's on the high Line that
38:13
Speaker 3: we are going in to have it converted from office
38:15
Speaker 3: to residential.
38:16
Speaker 2: On the Highline. All those properties have become incredibly valuable
38:20
Speaker 2: with some starkitech designers and that sort of stuff. It's
38:26
Speaker 2: always fascinating. I'm sure that's going to be uh more interesting.
38:30
Speaker 2: When you say high tech self storage, I can imagine
38:35
Speaker 2: an app and an ability to have stuff brought out
38:38
Speaker 2: to you or stuff brought into you. What does high
38:40
Speaker 2: tax self storage look like?
38:42
Speaker 3: So we have actually harnessed the free energy of your
38:45
Speaker 3: cell phone to unlock the lock. So it's pretty interesting.
38:49
Speaker 3: So it's almost like a PayPal I believe that our
38:52
Speaker 3: Apple pay uses. So basically, if you look at the
38:55
Speaker 3: lock is what controls this business. The actual lock that's
38:57
Speaker 3: put on and you have this a physical key, you
39:00
Speaker 3: can lose that key, you can you know, it's hard
39:02
Speaker 3: to share. Like let's say your small business, how do
39:05
Speaker 3: you give your employee access, I'll give multiple keys. So
39:07
Speaker 3: we've devised and have built a lock that your cell
39:11
Speaker 3: phone gets an electronic key sent to it and then
39:14
Speaker 3: you can use that to open up the lock. There's
39:16
Speaker 3: no batteries needed, there's no Wi Fi needed.
39:18
Speaker 2: Some of the new evs are the same way where
39:21
Speaker 2: you show up with the phone and it exactly unlocks
39:24
Speaker 2: the car, it lets you start it.
39:26
Speaker 3: So we're bringing this to the self storage business and
39:29
Speaker 3: we have our first five thousand being deployed as we
39:32
Speaker 3: speak right now. But what's really nice it's catering not
39:35
Speaker 3: only to the residential the business. Consumer then can share
39:39
Speaker 3: their key for one time use or coming use with
39:41
Speaker 3: an employee. The other thing is if they're late and
39:44
Speaker 3: don't pay, their electronic keys turned off. But they also
39:47
Speaker 3: the customer gets a full audit at the end of
39:49
Speaker 3: the month when their unit's been opened, what time it was,
39:51
Speaker 3: so they know who's been in and out of their tracks.
39:55
Speaker 2: That's that's really fascinating. If it's not Wi Fi, how
39:59
Speaker 2: does the key operator? Is that Bluetooth or.
40:01
Speaker 3: No, it's purely off, So your cell phone gives off
40:04
Speaker 3: energy just sitting there, and it was enough to harness
40:07
Speaker 3: to actually flip that solenoid. It's pretty amazing. So we've
40:10
Speaker 3: been working for a couple of years to get this perfected.
40:13
Speaker 2: I'm assuming there has to be a battery, no battery.
40:16
Speaker 3: Your phone, no battery, no battery. That's the key to this,
40:19
Speaker 3: and it's good that you brought that up because everybody
40:22
Speaker 3: else has done it with a battery in.
40:23
Speaker 2: The lock, and eventually that battery battery the digital type
40:28
Speaker 2: digital safs have a battery. The first time the battery
40:30
Speaker 2: dies on your safe. You know, they're like, oh my god,
40:33
Speaker 2: and you call them up and say, just just replace.
40:35
Speaker 3: This wasn't supposed to happen right now.
40:36
Speaker 1: It is.
40:37
Speaker 3: So if you think about it, one of our facilities
40:38
Speaker 3: in the Storia, it's thirty three hundred units. Okay, it's
40:42
Speaker 3: one hundred and fifty six thousand square feet. So first
40:45
Speaker 3: of the month comes, if people haven't paid, that manager
40:48
Speaker 3: has to leave the front desk, go around and double
40:50
Speaker 3: lock those units. Right now. The electronic key just matically
40:54
Speaker 3: freezes the unit. So it reduces our labor. It gives
40:57
Speaker 3: the consumer a better product and easier product. You don't
41:00
Speaker 3: have to worry about losing a key. They have a
41:01
Speaker 3: lock for free on their unit, They get an audit
41:04
Speaker 3: of their unit. It gives them everything they want to know.
41:06
Speaker 3: It's a great win win, huh.
41:09
Speaker 2: Quite fascinating. So giving your perspective and experience in all
41:15
Speaker 2: sorts of commercial real estate twenty twenty six, there's a
41:18
Speaker 2: lot of questions. People have no idea what's going on
41:21
Speaker 2: in terms of rates, in terms of government policies and
41:25
Speaker 2: tariffs and all these different things. What are you seeing
41:28
Speaker 2: in the commercial real estate space? Circa twenty twenty six.
41:31
Speaker 3: It's a good question. I was on the phone on
41:33
Speaker 3: the way down here with some of my bankers talking
41:34
Speaker 3: about this. You know, where's the curve look like in
41:37
Speaker 3: the short term. You know, obviously I think SOFA is
41:40
Speaker 3: going to be coming down. You know, obviously the race
41:42
Speaker 3: of being lowered. I'm hoping to see that on the
41:44
Speaker 3: five year treasury as well.
41:47
Speaker 2: You know, is that your benchmark for surfees as opposed
41:50
Speaker 2: to you know, ten years for mortgages.
41:52
Speaker 3: Yeah, so I look at the five year quite a bit.
41:54
Speaker 3: You know, we'll do ten year and some but the
41:57
Speaker 3: length of the fund really the five years probably the
42:00
Speaker 3: most conducive in a fun structure. It gives you the flexibility.
42:04
Speaker 3: You know, you can refinance out of it, but you're
42:06
Speaker 3: not locked into a point where at times the debt
42:09
Speaker 3: could be a penalty. If it's under leverage, you eliminate
42:11
Speaker 3: a lot of buyers at the end when you do
42:13
Speaker 3: a roll up, or if it's too costly, then you
42:15
Speaker 3: have defeasants and everything else that goes along with it,
42:18
Speaker 3: you know, maintenance. But the five year works well.
42:21
Speaker 2: So we've been hearing from various manufacturers. There's no sort
42:25
Speaker 2: of clarity as to policy. Everybody is kind of frozen,
42:29
Speaker 2: cap X in place and are a little reluctance of
42:32
Speaker 2: builds or require I get the sense that's not really
42:35
Speaker 2: an issue with your business.
42:37
Speaker 3: Going back, it's need based real estate. People need it
42:40
Speaker 3: to no matter what the life cycle is, whatever the
42:42
Speaker 3: macro economy is. They need space for their products, goods, inventory,
42:48
Speaker 3: their personal items.
42:49
Speaker 2: Really really fascinating last question before we get to our favorites.
42:55
Speaker 2: So what do you think commercial real estate investors aren't
42:59
Speaker 2: thinking about talking about but perhaps should be. What's really
43:03
Speaker 2: overlooked in terms of pick a subject, assets, geographies, policy,
43:09
Speaker 2: that's getting overlooked, But what really deserves more focused.
43:13
Speaker 3: And I really think it's about how to really create
43:16
Speaker 3: value in real estate. Real estate is not a short
43:19
Speaker 3: term investment, and a lot of people look, and I'm
43:22
Speaker 3: not even talking three to five years is short in
43:25
Speaker 3: real estate. I remember years ago this old timer told
43:27
Speaker 3: me that, you know, real estate's boring for the first
43:29
Speaker 3: thirty years. But it's true. It really takes a while,
43:33
Speaker 3: not only to it not be boring, but to be actually,
43:37
Speaker 3: you know, profitable, lucrative, and then you start really then
43:39
Speaker 3: it starts to multiply on itself as the rents go
43:42
Speaker 3: up and you stabilize those expenses, things start to grow rapidly.
43:46
Speaker 3: But I think it's the longer term vision to really
43:48
Speaker 3: create true value in real estate. I think the time
43:51
Speaker 3: arise and needs to be a little bit bigger than
43:53
Speaker 3: three to five years, because what happens and the people
43:55
Speaker 3: are put in the situation where they have to sell
43:58
Speaker 3: or they have to do something whereins instead. Real estate
44:01
Speaker 3: has to live through those cycles and it's just the
44:03
Speaker 3: best way to management just buying the right assets, defensive assets,
44:07
Speaker 3: Like when we're buying an asset, one of the biggest
44:10
Speaker 3: thing is traffic count. But it's not just traffic count,
44:12
Speaker 3: it's traffic pattern. We want to make sure that on
44:15
Speaker 3: our storage assets, you're driving past that facility every day
44:18
Speaker 3: on the way to work, on the way to school.
44:20
Speaker 3: It's location, location, location driven. People have to remember the
44:23
Speaker 3: basics at times, and sometimes we get away from that
44:26
Speaker 3: and we start to look at things that are too
44:27
Speaker 3: sexy or you know, stay simple. You know, things that
44:31
Speaker 3: people constantly need, and you'll realize when you buy assets
44:34
Speaker 3: like that, there's inflation hedges built in. Like storage, I
44:37
Speaker 3: can adjust rents on a thirty day notice. You know,
44:40
Speaker 3: there's a lot of inflation heads built in those type
44:43
Speaker 3: of assets.
44:43
Speaker 2: It's funny the line real estate is boring for the
44:47
Speaker 2: first thirty years. After sam Zell passed away, I read
44:51
Speaker 2: a biography of him and one of the things that
44:54
Speaker 2: kind of that's donne me was he owned some of
44:57
Speaker 2: his properties for.
44:59
Speaker 3: Half a century very ever, yes, forever.
45:01
Speaker 2: That's just that's just an unbelievable number.
45:03
Speaker 3: It's almost like the Warren Buffett way of a buying
45:05
Speaker 3: real estate, and that's the way I and I think
45:07
Speaker 3: that was probably the hardest thing for me to get
45:09
Speaker 3: my head around doing the funds, because I know what
45:12
Speaker 3: real estate can do. Over when you get past that
45:14
Speaker 3: ten year period, that's when your values start to really
45:17
Speaker 3: start escalating and really really growing, and it's really having
45:20
Speaker 3: the right LPs understanding, you know, the asset classes.
45:24
Speaker 2: Long term is really long term when it comes to
45:27
Speaker 2: real estate.
45:27
Speaker 3: I'm I'm God willing I'll be here when I'm ninety four.
45:31
Speaker 2: So so let's jump to our favorite questions that we
45:34
Speaker 2: ask all of our guests, starting with who were your
45:37
Speaker 2: mentors who helped shape this obsession with real estate from
45:41
Speaker 2: the earliest days and help shape your career.
45:44
Speaker 3: I've had I've been very fortunate to have some great
45:47
Speaker 3: partners along the way from some of my ken Lang
45:51
Speaker 3: Go and founder from Depot is a really close friend
45:53
Speaker 3: and mentor. And but along the way I've been I
45:56
Speaker 3: think everybod you learn from everybody you meet along the way,
45:59
Speaker 3: I think kind of and when you look at that,
46:01
Speaker 3: anybody can be a mentor at any given point in time.
46:04
Speaker 3: But I've been fortunate to have some of the larries
46:06
Speaker 3: investors in the world, like the late Ira Harris, who
46:08
Speaker 3: was absolutely amazing and taught me a lot, you know,
46:11
Speaker 3: just life lessons speaking to them, knowing you know, the
46:14
Speaker 3: long term look at assets, how to be patient, what
46:18
Speaker 3: to look for you know, there's a lot that I've
46:22
Speaker 3: added up over the years and hopefully now I'm passing
46:24
Speaker 3: that long to others.
46:25
Speaker 2: So let's talk about books. What are you reading and
46:28
Speaker 2: what are some of your favorites.
46:30
Speaker 3: I think probably my favorite was Remnants of a Stock Operator.
46:33
Speaker 3: It was a great book.
46:34
Speaker 2: What about streaming? What are you listening to or watching anything?
46:37
Speaker 2: Keeping you entertained?
46:38
Speaker 3: These days? Podcast why besides yourself? We were all in
46:43
Speaker 3: listening to some of that on the way down. It
46:44
Speaker 3: was just listening to at you your interview with lang
46:47
Speaker 3: Stan's CEO.
46:48
Speaker 2: Will Helm Schmidt.
46:50
Speaker 3: Yeah, fascinating guy, really, really, I was a great interview.
46:52
Speaker 3: By the way, I didn't realize how big into cars
46:55
Speaker 3: he was.
46:56
Speaker 2: Can I tell you there are worse places to be
46:58
Speaker 2: than a beautiful sunny weekend?
47:00
Speaker 3: Two port you sounded very happy.
47:02
Speaker 2: I had a good time that weekend. So final two questions,
47:06
Speaker 2: what sort of advice would you give to a recent
47:09
Speaker 2: college grad interest in the career in commercial real estate investment?
47:13
Speaker 3: I think it's in anything. Don't count somebody else's money.
47:16
Speaker 3: I see a lot of younger people wondering what the
47:19
Speaker 3: other person next to me is making and concerned about that.
47:22
Speaker 3: Always do more than what you're paid for, and you
47:25
Speaker 3: have to be enthusiastic. Enthusiasm is probably the biggest driver
47:28
Speaker 3: of success.
47:29
Speaker 2: I can think of enthusiasm that's really fascinating. And our
47:32
Speaker 2: final question, what do you know about the world of
47:35
Speaker 2: commercial real estate investing today? Would have been helpful back
47:39
Speaker 2: in the nineteen nineties when you were first starting out.
47:43
Speaker 3: I would say, it's more about managing people. It took
47:46
Speaker 3: me a long time to learn how to manage people.
47:48
Speaker 3: You know, I didn't have the benefit of working for
47:50
Speaker 3: a company. I started my own business in college obviously
47:53
Speaker 3: grew it straight through, never had that experience. It took
47:56
Speaker 3: me a long time to learn how to manage different
47:59
Speaker 3: I would say, a strengths of different people and I
48:03
Speaker 3: wish I had and the ability to empower people. It took,
48:07
Speaker 3: you know, obviously, it took me probably a decade and
48:09
Speaker 3: a half before I really felt comfortable doing that. But yeah,
48:13
Speaker 3: I think that was probably if I had done that earlier,
48:15
Speaker 3: I'd probably be bigger.
48:16
Speaker 2: Really, really quite fascinating. Thanks Bob for being so generous
48:20
Speaker 2: with your time. We have been speaking to Bob Moser.
48:24
Speaker 2: He is the founder and CEO of Prime Group Holding's,
48:28
Speaker 2: America's largest privately held self storage investment funds. If you
48:34
Speaker 2: enjoy this conversation, well be sure and check out any
48:38
Speaker 2: of the five hundred and ninety two that we've done
48:41
Speaker 2: over the past twelve years. You can find those that iTunes, Spotify,
48:46
Speaker 2: Bloomberg YouTube, or wherever you get your favorite podcasts. I
48:51
Speaker 2: would be remiss if I do not thank the crack
48:54
Speaker 2: team that helps me put these conversations together each and
48:58
Speaker 2: every week. Elect Marxist Noriega is my video producer. Sean
49:03
Speaker 2: Russo is my head of research. Anna Luke is my
49:07
Speaker 2: podcast producer. I'm Barry Ritolfs. You've been listening to Masters
49:12
Speaker 2: in Business on Bloomberg Radio.