FUTURE PROJECTIONS V4

What’s up everybody, and welcome to Self Storage Income. Today, we are gonna be talking about future projections. And I really wanna take this idea of looking at the industry, its overall performance, and taking that 10 years out into the future. Now, why this is important? It’s obviously important if you’re investing or trying to get into the industry. But the thing we have to realize is 10 years is a long time. A lot changes in 10 years. This idea of doing projections and trying to understand what an industry or performance may look like over that given time is really, really hard. In fact, it’s pretty much impossible. So it’s really important to use frameworks and contexts to evaluate how you’re making decisions and what that may lead to. So in this video, obviously we don’t have a defined answer, but I am going to give you things that can help you as you look forward to the future and how you make these decisions. All right, before we go any farther, please like and subscribe because that’s how we appease the YouTube gods and help the algorithm, the almighty algorithm. So do that, we can get going. All right, first, self-storage. The thing that we need to understand is this is a maturing asset class. When I got started in self-storage in the early 2000s, nobody was talking about it. It wasn’t really a thing. It was not a young one, but it was more like a teenager, right? Self-storage started in the 70s and it kind of came of age in the 90s, right? In the early 2000s. When we got started in it, it was during the time where other assets were fully matured and they had just been on an expansion mode, a long development cycle and expansion like retail. Self-storage on the other hand, didn’t. It really hadn’t started that maturing cycle. Now, this is caused for a few reasons. First of all, it was caused because of the lack of ability to really manage those assets. There wasn’t a plethora of third-party management and definitely not good ones during that time. The other problem is financing. Banks didn’t want to loan. They viewed it as risky, unsure, because it had never gone through a major financial correction or a debt cycle before. So their models couldn’t predict how things were going to turn out and cause the industry to not be built out like a lot of other industries were. And there was also the lack of acceptance amongst consumers during this time. Not a lot of people used to have storage. Well, not as many as do today. All right, now we can obviously see from the past how much has changed in a very short period of time and how most people would have never predicted what happened in self-storage. We got into self-storage, but we didn’t predict what would happen. We used very fundamental principles to understand the asset type and why we chose to get into one as opposed to single-family housing or multifamily or retail or other different asset classes. Part of it was designed to us, what we wanted to do, what we wanted to achieve out of that asset. But understanding where the asset is today helps us really understand where it’s going to be in the future. We will not see returns like we did over the past 20 years out of self-storage. It is a maturing industry. Now, the things that kind of held it back are the opposite. Banks want to loan, there’s third-party management companies, and it is capital intensive, meaning capital is chasing self-storage in every single which way. There is a lot of pressure to get this asset class. Also, it is on the other side of a development cycle. Over the last 10 years, it has been a building boom for self-storage. Developers have chased it, and that continues to go on today. It is unprecedented in the last five, six years what we’ve seen in the development that didn’t even come close anywhere in self-storage’s history before that. So, because we understand this is a maturing industry and everybody says, well, is it gonna last? What are the returns gonna look like? And I don’t have a crystal ball, so I can’t tell you. Let’s talk about ways that we look at this industry and how to analyze if it’s a good investment, what are the long-term effects going to be? So, the first thing that I use to evaluate any asset class is I’m looking at their fundamental drivers and eroders. I look for the drivers of value. So, what is it that actually creates value within those assets? Then I look for the eroders. What are the things that erode value from these assets? And I’m not talking about cap rate compression due to large volumes of capital chasing the asset in certain cycles in the market like we are in today, where there is a plethora of money with nowhere for it to go. And so, the exact same assets we’re seeing get more expensive because of just pure demand. I’m talking about the fundamentals of value that actually create within that asset type, like a business. Who’s using it? Why are they using it? Are they going to keep using it? And will there be more fundamental demand for that asset class over the next 10 years? What are the things that erode value away? And are those things increasing or are they reducing? Then we fundamentally understand that there are things that we just don’t know we never will. There’s black swans, things that come out of nowhere that no one predicted. There can be fundamental changes in society, in investment capital, in how markets work, and even governmental changes that no one knows are coming. So we take the unknowns and I realize what they are. They’re unknowns and I can’t know what they are. So I deal with the fundamentals and the basics. We look at where the asset is, and I try to identify the drivers in a rotors of data asset, how they are currently being played, the end consumers, right? Our customers, our tenants, and how they view are utilizing that asset, and if that’s going to change in the future. And really, we want to keep it to the basics. When we’re dealing with markets and when we’re dealing with self-storage in general, when we look at it as an asset overall, that’s a really poor way to do it because in the future and by 2030 or 2040, there will be cycles, there will be expansions and contractions, and assets will fail and assets will succeed, and that is primarily going to be dictated on a local basis. Meaning, the local economics are gonna drive whether that asset succeeds or fails. And that is principally because of the rotors and the drivers. So, although we’re talking nationally, we’re talking the asset as a whole, you have to remember nothing, absolutely nothing trumps your local market that you’re investing in. All right, so let’s talk about these two factors. First of all, the drivers. What are the drivers behind valuations in self-storage? There are fundamental drivers of revenue that we can focus on. We’re obviously not gonna cover everything and every situation and location is different. But first and foremost, we’re looking at limited space, and we are also looking at ability of utilizing certain space. This is really determined in the area as square footage available for people and then how they can use that square footage through things like regulation. This has been the big change. People haven’t been able to have as much space and what they can do with that space has been constrained by regulations. You just can’t go build a shop on the side of your house. We see more people downsizing, living in smaller houses with HOAs, more regulations. These are all drivers of self-storage. The next thing that we look at is movement or change. You know, a lot of people don’t realize how mobile America is today. When you look back, when we’re talking about prior to the 70s when storage really came about, people would live in the same city their whole entire life. That’s very rare now in America. We move, we move for opportunity. And due to technology, we can find opportunity and we can now move cheaper than we ever have before. We have a lot more fluid markets which allow people to sell things, it allows them to move houses and to get resources and the things that they need to make opportunities come to fruition. Another driver is really the idea of a decentralized workforce. So prior, we really focused on everybody being all together in one location. COVID really blew this out of the water. People can work from home. We have internet businesses starting up all over the place. We have last mile problems, meaning people need space to get products, services, we need to ship things. All of these drivers that help self-storage and help the value or the value to its end users, the tenants or customers, we don’t see this changing. Regulation isn’t going down. We do not see people all of a sudden being able to afford way more space. In fact, we believe that the use of space that they have is changing. They’re turning it into offices, right? People that want children, they don’t have as many rooms that they have to utilize. This causes them to need to use other space. Workforce, defragmentation of that workforce, that’s all going to continue. The other driver is purchasing power of the public and our ability to buy things with the same dollar. Once the world became flat, meaning we could outsource production, products, goods and services in the 1900s, that allowed us to make things and build products at a much cheaper amount and we could deliver it to us. This meant the US consumer could buy way more with the same dollar. Right in tow with that, we had financing. It used to be a lot of money, but now we have financing. It used to be hard to get financing for anything. Now you can finance a microwave. There’s almost nothing you can’t finance today. This caused a mass, mass explosion in purchasing power throughout the 90s that continues. Those things too, we do not see going away. In fact, those are being driven due to the explosion and innovation associated with the internet and things like Amazon. So now let’s move to the things that we think are eroders. When we’re looking at eroders, we think oversupply. Okay, oversupply is the biggest eroder that we can find ever. Oversupply means you have too much space, too many units, too many storage facilities, selling units and there’s just not enough demand and not enough buyers in an area. This is something you can’t overcome. Oversupply is probably the number one killer that I’ve ever found of storage facilities over the longterm. Over the longterm. Over the longterm. Competing business models. We see competing business models coming in that are trying to fundamentally change the way self-storage works, the way tenants access self-storage, the way that people find self-storage. We find innovation all over the self-storage business model. And most of this innovation is coming at the expense of a self-storage operator’s margin. It’s a really big problem that we have been working on for years and invested millions of dollars in technology to try to solve. We’ve invested millions of dollars in technology to try to stop for our own business model. These competing business models will continue. Now, we have not found any competing business model and we do not see any that will take a huge chunk of the storage market. But a lot of on-demand storage and things like that, they will take a percentage of demand. And that has to be accounted for when looking at the industry, particularly over the long run. How much will it be? We’re not exactly sure. But because self-storage is so localized, it’s so easy to get into the market. And if we look at the average market, we don’t see a tremendous change over the next 10 years in the percentage of people that utilize self-storage, especially because that continues to go up. The next thing we see is regulation. This may have everything to do with the regulation of tenants, the utilization of land, and how self-storage can be utilized within our economy. That is a big one. And that’s a big one that we want to compete in. And the next thing with eroders we see is the price to build, the price to do it, to just get so high that it is not obtainable. One of the biggest things that we see that will affect self-storage over the next 10 years are the things that we don’t know about. Now, what does that mean? That means there is always innovation and there are always things coming in that will change. But what we don’t know is that there is always a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. And that’s why we’re seeing a lot of growth in the economy over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. And that’s why we’re seeing a lot of growth in the economy over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. And that’s why we’re seeing a lot of growth in the economy over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. And that’s why we’re seeing a lot of growth in the economy over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. And that’s why we’re seeing a lot of growth in the economy over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. And that’s why we’re seeing a lot of growth in the economy over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years. So, what does that mean? That means that there is a lot of innovation and a lot of things that will change over the next 10 years.