Podcast Episode Summary

Real Talk: Real Estate Discussions with Andrew Kirsh

Episode Title: Why Self-Storage is “Beautiful” with Brian Shniderson, CEO and Founder of Capital 360
Release Date: December 11, 2024
Guest: Brian Shniderson, CEO and Founder of Capital 360

Episode Overview

This final episode of 2024 features a deep dive into the self-storage asset class, with host Andrew Kirsh interviewing long-time friend and client, Brian Shniderson. Brian shares his journey into self-storage, discusses the perceived beauty of the business, and provides insights into development, operations, capital markets, and challenges within the self-storage industry. The episode is tailored to both industry newcomers seeking guidance and seasoned professionals tracking evolving market trends.

Key Discussion Points and Insights

1. The State of the Real Estate and Self-Storage Market

(00:02 – 05:37)

• Andrew recaps 2024 as a year of two halves—slow and distressed in the first, active and optimistic in the second.

• Echoes of optimism for 2025, with rising interest in alternative asset classes like self-storage.

• Brian affirms institutional capital increasingly targets alternatives due to headwinds in traditional assets like office and multifamily.

  "I think that alternative assets in general right now are where your institutional capital providers seem to be focused."
  — Brian Shniderson (04:25)

2. Brian’s Path Into Self-Storage

(06:01 – 09:35)

• Began investing in self-storage post-Great Recession (~2010-11), initially in distressed assets.

• First deal: Acquired an underperforming but well-designed facility outside Chicago from a small bank, grew occupancy from 20% up, and sold at strong profit.

• Early deals meant direct learning on operations, property management, and asset repositioning.

  "I like to say that I was doing self storage deals when it was a 10 cap business."
  — Brian Shniderson (06:01)

3. "Beautiful" Self-Storage: Redefining the Asset

(09:35 – 12:24)

• Brian calls self-storage facilities “beautiful,” referencing design, pride in development, and the process as akin to raising “children.”

• Modern development focuses on design quality, citing award-winning projects and integration into mixed-use or urban areas.

  "If you're in any business, you better love what you do. If not, get out of it and go do something else because life's too short... all of these projects, Andrew, they're like my children."
  — Brian Shniderson (10:01)

4. Site Selection & The Role of AI

(13:02 – 15:40)

• Site selection previously focused on classical metrics: disposable income, demographics, competition, drive times.

• Shift to AI: Brian partners with tech providers and uses AI agents to optimize sourcing—AI processes zoning, competitor density, demographics, and efficiency in identifying sites.

  “Efficiency, just efficiency. The agent will know exactly what we're looking for. So it's from a zoning perspective, from population, from competitors, etc.”
  — Brian Shniderson (14:27)

5. Development Challenges: Zoning & Municipal Resistance

(14:58 – 17:34)

• LA region and many municipalities restrict or have "zoned out" self-storage, making entitlements and approvals very challenging.

• Local opposition is strong—Brian jokes developers get similar reactions as “small nuclear reactor, self-storage.”

• Success in new development requires stakeholder engagement at every level (neighborhood, council district, planning).

  “Self storage in my view, seems to be the hardest hit in terms of the kind of product that for whatever reason evokes a real negative. Oh gosh, no, we don't want that in our neighborhood... you say small nuclear reactor, self storage.”
  — Brian Shniderson (17:18)

6. Supply Constraint and Cap Rate Dynamics

(17:34 – 19:58)

• High entry barriers in markets like LA compress cap rates for existing core product.
• Some municipalities make expansions or new builds nearly impossible, increasing the value and scarcity of permitted sites.
• Notable deal: Recent trade in South Pasadena reflects impact—existing assets with "legacy" entitlements gain value.

7. Structure of the Self-Storage Industry

(19:58 – 22:02)

• Only about 30% of US self-storage is institutionally owned; most is still mom-and-pop.

• Major brands often just manage, not own, most facilities; owners frequently partner with larger operators or REITs for management and leasing strategy.

  "We've always been known as kind of a mom and pop industry...I think there's about 55,000 storage facilities… about 30%... is institutional."
  — Brian Shniderson (20:31)

8. Operations: Lease-Up and Tenant Retention

(22:02 – 25:47)

• Lease-up times variable; recent 150,000+ sq. ft development in LA reached 85% occupancy in 7 months vs. 24–30 month pro forma.

• Tenant retention increasing: average stay moving towards a year, up from 6 months.

• Industry leverages "existing customer rental increases" (ECRI); tenants come in on teaser rates, get bumped up over time.

  "Our average tenancy used to be around six months and now it's pushing closer to a year with these ECRI."
  — Brian Shniderson (25:33)

9. The Landmark Cerritos Transaction

(25:47 – 28:21)

• Closed the largest single-asset US self-storage sale to date: $91 million for a 300,000 net rentable sq. ft. facility in Cerritos, CA.

• Drew intense interest despite overall market sluggishness; sold during a "down market" but for a premium due to scale and infill location.

• Specific cap rate is not detailed, but expansion potential included in sale.

  “…we had Odyssey funds, we had sovereign wealth funds, all the big equity players. Everybody was bidding on this.”
  — Brian Shniderson (27:16)

10. Future Outlook and Strategy

(28:21 – 32:58)

• Pipeline includes new large projects in Hawaii and additional SoCal developments.

• Strategy focuses on high-barrier, urban infill markets: “We do build very large and we try to get into very high barrier to entry markets.”

• Selective about capital partners—value on alignment and cultural fit over purely economic considerations; flexibility between institutional partners, syndications, high net worth investors.

  “It's about culture and it's about cultural congruity and your ability to, during COVID, Trump tariffs or any of the major items that we've dealt with...you have to be able to talk with your partner and they have to be there for you. And if they're not, you got a big problem.”
  — Brian Shniderson (31:34)

Notable Quotes and Memorable Moments

• On loving the business:
  “If you're in any business, you better love what you do. If not, get out of it…” — Brian Shniderson (10:01)

• On how cities react to self-storage:
  “You say small nuclear reactor, self storage.” — Brian Shniderson (17:34)

• On the self-storage industry’s structure:
  “We've always been known as kind of a mom and pop industry…” — Brian Shniderson (20:31)

• On partnership in real estate:
  “It's not necessarily about making the most amount of money with, with your partner in the splits. It's about culture and...during COVID, Trump tariffs or any of the major items that we've dealt with... you have to be able to talk with your partner and they have to be there for you.” — Brian Shniderson (31:34)

Timestamps for Major Topics

• 00:02 – Year-in-review and optimism for 2025
• 04:25 – Institutional interest in self-storage
• 06:01 – Brian’s first self-storage deal and learning curve
• 09:35 – The "beauty" in self-storage development
• 13:02 – Site selection evolution; legacy metrics vs AI
• 14:58 – Challenges with city approvals and zoning
• 17:34 – Market supply constraints and asset valuation
• 19:58 – Industry breakdown: ownership vs management
• 22:02 – Lease-up process, tenant retention, and ECRI
• 25:47 – Details and significance of the Cerritos transaction
• 28:34 – Capital provider preferences and development plans
• 31:34 – The importance of partnership and alignment

Tone and Language

• Friendly and conversational, with shared anecdotes and a sense of camaraderie between host and guest.
• Brian’s passion for the business and pride in his projects are palpable; Andrew brings humor and relatable metaphors.
• Emphasis on practical experience, “real talk,” and honest challenges in the industry.

Conclusion

This episode is a revealing look into why institutional and entrepreneurial interest in self-storage continues to grow, the nuances of development in high-barrier markets, and why the asset class can unexpectedly be described as “beautiful.” Brian Shniderson’s expertise shines through stories of grit, adaptation, and architectural pride, offering both newcomers and insiders valuable guidance for the years ahead.