301. How Your Facility Can Make MORE Money with LOWER Occupancy w/Jonah Hall

Summary

Podcast Summary: Self Storage Income – Ep. 301

Title: How Your Facility Can Make MORE Money with LOWER Occupancy (w/ Jonah Hall)
Host: AJ Osborne
Guest: Jonah Hall (President, Cedar Creek)
Date: June 17, 2025

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Overview

This episode of the Self Storage Income podcast tackles a somewhat counterintuitive but powerful topic in self-storage operations: how facility owners can increase revenue and value even as occupancy declines. Host AJ Osborne welcomes returning guest Jonah Hall, President of Cedar Creek, to break down real-world examples, strategic concepts, and actionable operational insights. The discussion focuses on revenue management, occupancy metrics, technology integration, market dynamics, tenant quality, and the compounding effects of these variables on long-term wealth in self-storage.

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Key Discussion Points & Insights

1. The Opportunity in Declining Occupancy

[00:00 – 05:43]

• Reactive vs. Strategic Thinking: Owners tend to panic when occupancy drops, but strategic managers see opportunity.
  • Quote: “You can actually create opportunity in a time of decline if you're strategic about everything else.” – Jonah, [00:00]
• Case Study – Oklahoma City Market:
  • Facility dropped from 75% to 70% occupancy in 12 months, but revenue per available unit increased from $59 to $70 (+15%).
  • Strategic rent increases during low occupancy created inventory that could be leased at premium rates in peak season.
  • “If you didn’t have that unit to rent because you were still renting it at lower rates, you really gave up the value of the leasing season.” – Jonah, [04:37]

2. Occupancy Metrics Demystified

[06:18 – 10:14]

• Types of Occupancy:
  • Physical Occupancy (by unit count and square footage)
  • Economic Occupancy (revenue relative to potential)
• Differences between these can be striking—they need to be interpreted in context.
  • Example: New 975-unit facility had 9% by unit, ~11–13% by square footage, but 18% economic occupancy due to high-value RV and large unit rentals. [08:13]
• “It's very easy to lose track of this if you're not in the industry every day looking at it. But your smaller units rent for much higher rates per square foot.” – Jonah, [10:14]

3. Revenue, Market Forces & Development

[10:14 – 14:56]

• Market Studies Are Critical:
  • Thorough, granular market studies are vital to understanding what unit sizes to build or convert.
  • “No two unit sizes are created equal—each has its own supply and demand curve.”
• Bank/Lender Perception vs. Market Reality:
  • Banks may push for unit mixes (e.g., smaller units) that look de-risked on paper but do not reflect real demand.
  • “Banks, you know, they're a little behind on how things work. Occupancy means a lot to them. A lot. And to operators. We know revenue really drives it more than occupancy.” – Jonah, [12:05]

4. Occupancy Games & Unit Mix Failures

[16:37 – 20:43]

• “You can be overbuilt. If you look at even our portfolio or anybody else's, the vacancies in your facilities are almost always two, maybe three sizes at a 12 or 14.” – AJ, [16:37]
• Overbuilding less-desirable sizes (e.g., too many 5x5s in a rural market) leads to persistent vacancies.
• Adaptive operators convert excess small units to larger sizes to meet true market demand.

5. Pricing, Demand, and Market Granularity

[21:15 – 26:29]

• Unlike multi-family, self-storage is not a homogeneous product; pricing and demand must be managed by unit type and micro-market.
• “Two miles one way, the rate goes to over $2 a square foot. The other way it goes to 80 cents. ...On 100,000 square feet, that is astronomical.” – AJ, [22:53]
• External factors like HOAs have a significant impact on storage demand, especially for larger units and RV storage.

6. Demand Signals & Seasonality

[28:05 – 30:30]

• Indicators of Real Demand:
  • Rising street rates (even if occupancy is flat or falling).
  • Population/housing growth and square foot per capita measures.
  • “If rates are consistently going up, that's a good driver... Now they haven’t been for months anywhere.” – Jonah, [28:29]
• Seasonal/Transient Demand:
  • College towns explode with demand during move-out months, but operators must avoid being left with high fall vacancies or low-value tenants.

7. Knowing Your Customer & Maximizing Lifetime Value

[32:25 – 36:16]

• Operators must know their churn metrics and lifetime customer value to maximize revenue.
• Seasonality and tenant “avatars” (types) differ by unit—marketing and pricing must reflect both the average stay and value per segment.
• “If you're not, you need to be messing with rates to figure out how to get [lifetime value] there.” – Jonah, [34:02]

8. Curating Your Tenant Base

[37:01 – 42:41]

• Not all tenants are created equal—high churn and delinquency can be mitigated by:
  • Requiring autopay
  • ID verification
  • Eliminating cash payments
  • Automating rental processes
• “We literally just say no, [to some tenants]... It's not worth the operational effort to deal with you every month.” – Jonah, [38:22]

9. Technology’s Role in Efficiency & Revenue

[40:00 – 42:48]

• Technology (like online leasing platforms and revenue management) makes operations scalable, attracts better tenants, and keeps costs down.
• “By creating things like requiring auto pay, like ID verification, like having a smartphone, you're automatically sort of ruling out people that you wouldn't have wanted as tenants anyway.” – Jonah, [41:11]

10. Revenue Management: Rate Increases, Communication, and Training

[44:30 – 55:54]

• Raising Rates: Key lever for revenue—needs to be staged (not all at once) and communicated with value.
• “Carrot and stick”: Give improvements (carrot) before raising rents (stick).
  • “If you're going to give them value, you want to make sure they at least are aware of that… before you go start doing things they're going to be upset about.” – Jonah, [52:15]
• Training managers to communicate rate increases and business rationale is crucial to avoid staff undermining ownership or creating PR headaches.

11. The Compounding Effect of Small Actions

[60:28 – 64:47]

• Small improvements to NOI (Net Operating Income) have massive impact due to cap rate leverage.
  • “You can add $50,000 of revenue but with... just ancillary income. ...That 50,000 at a 5 cap, I mean, holy cow... well over a million dollars.” – AJ, [60:50]
• Operational discipline, regular rent increases, and technology implementation build compounding value over years, not months.

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Notable Quotes & Memorable Moments

• “I would rather have 20% occupancy and a million dollars in revenue than 100% occupancy and $500,000 in revenue.” – AJ, [12:28]
• “Your smaller units rent for much higher rates per square foot. ...But if you can't fill them up, you'd much rather have another unit that you can lease.” – Jonah, [10:14]
• “When we take over a facility, most of the time the tenants that are there are not our target tenants.” – AJ, [44:30]
• “We bought it ...and then we turned the 5 by 5s into 5 by 10s, 10 by 10s and immediately went up to 90 plus (occupancy).” – AJ, [19:38]
• “Manage your first tenants, not the other way around, don't let your tenants manage you.” – AJ, [58:03]
• “Be patient. It really does take a lot of time to retrain tenants.” – Jonah, [58:07]

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Timestamps for Key Segments

• [00:00 – 05:43] – Why lower occupancy can drive higher revenue
• [06:18 – 10:14] – Understanding physical vs. economic occupancy
• [10:14 – 14:56] – Unit mix, market studies, and lender perceptions
• [16:37 – 20:43] – Avoiding unit-mix mistakes & conversion success stories
• [21:15 – 26:29] – Pricing by micro-market and external demand forces
• [28:05 – 30:30] – Reading demand signals & managing seasonality
• [32:25 – 36:16] – Calculating and maximizing customer lifetime value
• [37:01 – 42:41] – Curating the right tenant base through process
• [40:00 – 42:48] – Leveraging technology for tenant quality and efficiency
• [44:30 – 55:54] – Best practices for rent increases & staff/culture management
• [60:28 – 64:47] – The massive impact of small improvements (& final thoughts)

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Conclusion

This episode delivers a masterclass in thinking beyond “occupancy at all costs.” Jonah Hall and AJ Osborne show that revenue (and thus long-term wealth) is a multi-variable equation: occupancy, pricing power, tenant quality, technology, and market knowledge. Owners who understand and work these levers—especially during downturns—unlock value overlooked by less sophisticated operators. For listeners just starting, patience and data-driven discipline are the watchwords; for the experienced, refining these strategies offers serious competitive advantage.

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Find Jonah Hall: LinkedIn (search: Jonah Hall, Cedar Creek)
Find more episodes/video: Self Storage Income YouTube Series

Transcript

[A]

It just goes to show that you can actually create opportunity in a time of decline. If you're strategic about everything else, a lot of people just don't quite. It doesn't click.

[B]

Occupancy is dropping. Like, what are we doing? Like, stop everything.

[A]

You know, honestly, we had a few moments like that, like, what's happening?

[B]

What's going on?

[A]

But then when you really stop to see that you just created vacancy in units that will now be very, very important to lease up at much higher rates. This summer, that was the perfect time to be going through that exact phenomenon.

[B]

Demand can be really hard today for the fact that rates have been so weird over the last two years. Occupancy could be high while rates are still going down. And you're like, what? That never happened before. What are your key indicators that to you says demand? What's up, guys? Occupancy plummeting month after month, going into negative territory is actually a good thing. Well, it can't be. So how and why. Jonah, how you doing, man?

[A]

Good. Happy to be back. It's been a while.

[B]

It has. Happy to have you back. Yeah. So as you guys all know from. Geez, I can't even remember now when you were on, like, end of the year, it was. It wasn't even this year.

[A]

No, last year it was like. It was like, August, September.

[B]

Wow. It's been a while, dude. Holy cow. Time flies. But as all of you know, Jonah's here with Cedar Creek. He is one of the partners, and he is running up a lot of the ops. So he's president here. He's built other storage companies, and he focused a lot on the development. We're talking a lot about operations and the overall automation side, so that integrating with technology and the physical asset. And as everyone that listens to stuff knows, we're big on that, and there's good reasons why, but there can be some confusing things. And we've seen this. What we're doing today is actually giving you numbers and examples, which I'm really excited about, because it'll illustrate it. So why don't we set it up right there, dude? Let's just talk about occupancy dropping, literally going negative and how we look at that. And all of a sudden we're like, that's actually a really good thing. How do we get there?

[A]

Yeah. So there's a couple examples that we found in the portfolio that were just shocking, to be honest. The industry's gone through some really big drops in occupancy over the last really 18 months. But the last six or so have just been a steady decline in a lot of places or stagnant, but nothing really upticking until April and this month. And so January, February, March, in our portfolio, we saw drops in almost every site across the board. All states, all markets. It's just what was going on. But it just goes to show that you can actually create opportunity in a time of decline if you're strategic about everything else. So a couple of examples. Oklahoma City market, we'll go there. We've got multiple assets, as you know, in Oklahoma City, and we've got multiple examples of where, yes, occupancy dropped for the first few months of the year, but during those same few months, revenue was rising each month. And that's through hundreds, maybe thousands of rent increases going out, obviously. And a lot of, a lot of the hard effort of the revenue management team, but it's actually creating opportunity. And a lot of people just don't quite. It doesn't click right.

[B]

You see, it's occupancy is dropping, like.

[A]

Rent alert run around. Yes. And that's, you know, honestly, we had a few moments like that, like what's happening going on, but then when you really stop to see that you just created vacancy in units that will now be very, very important to lease up at much higher rates this summer. That was the perfect time to be going through that exact phenomenon.

[B]

And you didn't not only lose revenue, you got more revenue. Why it was going negative.

[A]

Right.

[B]

So that spread of revenue increase, but more inventory now to sell during the busy season. Exactly what that does to the revenue.

[A]

Right. So we, we track a metric revenue per available unit. Right. That's all your, all your units that are not damaged or completely down. Right. And so our revenue per available unit at let's say this Oklahoma City site rose from $59 to $70 in the last 12 months. Right. While the property went from 75% occupancy to 70% occupancy. So it dropped 5, but the revenue went up. What is that, 15%?

[B]

Yeah.

[A]

In the same time period. That's like the perfect start to the leasing season.

[B]

Yeah.

[A]

Because now we're heading right into ramp up and it has been. May has been an awesome month. Turn around. Everything is just, it's flying off the shelves. Right. We're selling everything right now. But if you didn't have that unit to rent because you were still renting it at the lower rates, you know, you really gave up the, the value of the leasing season.

[B]

How much have we rented. Now in comparison to all those months of loss.

[A]

So across the portfolio, I can't speak to that particular asset, but across the portfolio we saw declines in January, declines in February, still some decline in March. April plateaued, leveled off, and now we're starting to see the increase. In May alone, we've made up for the first quarter. May alone has been rocket ship upward.

[B]

Made up for the loss.

[A]

Revenue was higher, has begun.

[B]

And yeah, and this is a good point, we're moving into it. Yeah, so we made up and. But that loss was accompanied by increased revenue. Then in one month, all of a sudden we get a boost. If you weren't in that position, though, let's say you were at 100% occupied, you wouldn't get that boost at all.

[A]

You wouldn't, you would notice, you wouldn't feel it. Exactly, exactly. And it also just shows you that there's not a time to panic. Like it's pretty easy. You get to the end of March and you're like 90 days in a row of like things not going great. Right. From an occupancy standpoint, if you didn't track that revenue metric, you wouldn't really know that that was a positive. You would sit there and think, oh, I got to change things. You start tinkering with, you know what happens, you start tinkering with things and you don't know what worked and what didn't. Cuz you started messing with how the fundamentals work. So we got through it, we didn't mess with the fundamentals and really a good payoff. Now y.

[B]

It's one of the things I talked about in the book. You know, there's like saying occupancy doesn't matter. And what I mean by it is it doesn't matter alone. Like, I think a lot of people, they just see one thing and that's their target. But really it's the relationship between key indicators that matter more than them alone, because there's always another side to it. And so it's about reading what those indicators are telling you as time is going on and what the relationship between them actually is.

[A]

Absolutely. And this, this actually comes up a lot lately because we're working through underwriting models and all sorts of things on the, on the other side of the equation. Right. And you're talking about those same metrics. Which one's the most important? Physical occupancy. There's two types, right? Yeah, units and percentage of square footage. So you can track it both ways. But then there's also just Economic occupancy, revenue. Right. Which matters the most if you were going to pick one. You want to know where your revenue is.

[B]

Exactly.

[A]

But, but it's really interesting to see how those can be so dramatically different. So down in our brand new facility, we've got very different occupancy metrics depending on how you measure it. You know, you might be at 11% in one direction and 15 in another and 18 in another. And so you, that's a, that's a nine point swing in occupancy, but it's because you measure it differently.

[B]

So we've got the new facility just opened up, we're filling it up. We're going into this year. How different are those occupancy? Those three different types of occupancy and what do they mean?

[A]

All right, so the first is we'll go physical first and, and split it up. So physical you can measure on square foot, which this facility has 175,000 square feet. It's a large one. Right. And I think we, last I checked, we're about 9% occupied by square foot. Then you can do unit count. Actually unit count was lower. So we'll come back to that one unit count, 975 units. And we're. I think that was 9%. 9% of units are leased up.

[B]

Got it.

[A]

Square footage was a little higher. 11 or 12 or 13. Then if you go by economic. So this is where you have to have a denominator to measure against. Right. You have to come up with what is my gross potential rent for this property? Which we're kind of getting to the underwriting side. But that's if every unit was fully occupied at the rates you set out you were going to occupy them at. So that can be your denominator like.

[B]

On your website or whatever or just.

[A]

Well, in your underwriting model, in, in what you gave to the bank, you know, the lender cares, you care, your investors care. Right. What is the top line? Like, best case, every unit was full. This is, this is at, at max rates, this is what we can collect. And then your numerator is how much money are you collecting right now?

[B]

So.

[A]

Right. You create a measurement and that we're at like 18% occupied. Yeah. So it jumps from 9, 11 and 18. Right. Because we're collecting some big units that are really high rates right now in this leasing season. And it's a big deal in RV units in surprise. So if we're talking about specific reason in surprise is because RV units are selling it like hotcakes at ridiculous rates.

[B]

Yeah.

[A]

And that. And that's really affecting it.

[B]

So what, when you look at that, what, what is the story that the relationship between those three have? Like, what is it telling you about the asset and good things and bad things?

[A]

Well, it can tell you a lot of things. So one, it may, it may directly determine how you expand a facility. How you, when you expand a facility, it may direct, if you like, if you're doing an expansion. Right. So that's a key thing to watch as you're leasing up and watching which units are leasing at what rates and how you want to determine your layouts and your unit mixes comes into play with like our conversion project, Right. Where you do a first floor or first phase and then you build a second one. So that, that is a huge development and acquisitions metric to watch, is you.

[B]

Want to learn from, because it's not just like which unit is selling, but which unit is also selling at that highest economic occupancy.

[A]

Exactly. And so it's very easy to, to lose track of this fear if you're not in the industry every day looking at it. But your smaller units rent for much higher rates per square foot. Right. So if you could build more of those because there's enough demand for them, you'd want to. Absolutely. But if you can't fill them up, you'd much rather have another unit that you can lease. And so that, that actually plays into the development side a little bit. On the operations side. We're watching our marketing. We're watching. What are we, what are we out there? Advertising? We don't want to waste money on advertising a unit. We're 100% full in. Yeah, we don't want to waste money advertising units that are relatively full. Let's say 90%, 85%, we're stabilized. We're starting to really push rents on the existing customers at that point. But if we've got one unit size that's 30% full or something, we want to advertise that unit. It's more effective advertising. You're watching your valuation there. You're not spending too much. So it affects revenue management, rate management, and marketing and advertising.

[B]

So I have a facility then, and you, you're going to, you're going to buy my facility and you look back at the last year and you can tell that I was trying to get it ready to sell. Right. You know, and so I, you see my occupancy going up and up and up. But the other two were not. In fact, maybe they were going down in some aspects, like economic. What is that telling you about this facility?

[A]

But they're buying tenants, maybe.

[B]

Okay.

[A]

Very likely they're discounting heavily, try to get the occupancy up. And that's not a bad strategy. Yeah, I mean we sometimes will do that, especially in a lease up site where you'd rather have a butt in the seat or a person in the unit. Right. Than not not. And so I'd rather get somebody in at 20 bucks and move them to 100 over.

[B]

Yes. Because they're in there a year, then you can do something with rate. If you're not, you can't exactly do.

[A]

Now I don't want to move them at 20. If the market's 80, like I don't want to move somebody, then you just created more work for yourself. So I would see that as probably you're trying to lease it up from an occupancy standpoint to show something, whether that's to a bank or something. Because banks, you know, they're a little behind on how things work. Occupancy means a lot to them. A lot. And to operators. We know revenue really drives it more than occupancy.

[B]

I would rather have 20% occupancy and a million dollars in revenue than 100% occupancy and $500,000 in revenue, of course.

[A]

But actually it's. Even though it doesn't make sense, you have to play the game, right? If you're, if you're about to go into a season, like let's say your maturity on your loans coming up next summer, you got a year, what are you going to do in the next year to make sure that you can get a refi at the best possible value. Right.

[B]

And this could be a struggle for us because two, it's, it's not only that you got to play the game, they can actually dictate it. So you know, we have, and you mentioned smaller units. We had a bank that literally went and said, no, we want you to build smaller units. And because it looked better on a spreadsheet to them when we were going, these are the highest in demand, hands down. There's nothing even close to this. We can charge huge amounts, they'll fill up fast. And they're like, nope, it's way too much risk. And we're going, it's too much risk on your spreadsheet. But not in the market.

[A]

Right.

[B]

And for that example, for instance, those big ones, how are those doing?

[A]

First ones to rent at the highest rates.

[B]

The highest rates. And Those are limited.

[A]

It actually probably got blown up even further than we would have ever expected. A year ago, the market changed even more dramatically towards what we were trying to tell the bank a year ago. Right now, the RV units, there's no other one in the area, we have that big RV place right across the street and we're leasing them at crazy rates. And so that's why that economic occupancy on that site, for example, is just so much higher than our physical occupancy is because those used units are being rented out at crazy rates per foot.

[B]

So then if you were looking at me and you go, okay, you're 100%, the opportunity you may go is not an occupancy, but it's the economic occupancy because I was filling it up to get occupancy. Then you can come in and say you shouldn't be 100% full, right? There's demand, people are coming. You can't sell them anything that shows that you have, your rates are too low in the market.

[A]

And this is where market studies get really important. And I think a lot of people just skim over them, they don't really pay attention. But like, it's a lot of manual work, but it's worth it. It's worth it, it's worth it. You want to know exactly what's going on, especially in your trade area, in your little area. And so we do a lot of market studies, as you know, both for other people outside this building and for our own facilities, and those are painstakingly detailed because we want to know exactly how many units are in a market of each size and how many are full and at what rates each unit own.

[B]

Supply and demand.

[A]

We do, right? And then when you go build out your plan, your business plan for this property, you're saying, hey, rates are here today based on what the other guy was doing. And here's where we believe we can get rates without considering what the market may do, right? The market may change and go up or down. Whatever we're saying we can get to here, we know because this is how much lower this guy was than what he could get to. And so you create a business plan from here to here. And then of course, you also build in the future to some degree in your performance and stuff.

[B]

I, I was thinking about this this morning because I had a guy out here sitting next to us and when asked why he built his facility, it was, oh, cuz I own the land and apartments were harder or whatever. And then next, well, how did you choose your units? And he's like, well, the architect just built out what was the best use per square foot. Like how much I get the most and doing an even amount of each. And I was like, did you not look at the market? Right. Like what was dictating? And it just wasn't. He didn't even look at it. It was like, well, no, we just put units. Right. But how we look at it is. No, each unit has its own supply and demand. Because a 5 by 5 climate controlled is not the same as a 20 by 30. It's. They're not the same customers. They don't use them the same, they don't want. So you can be overbuilt. And I've said this a lot. If you look at even our portfolio or anybody else's, the vacancies, and your facilities are almost always two, maybe three sizes at a 12 or 14.

[A]

That's right. That's right.

[B]

And yet that can be a huge amount of.

[A]

And then you can have some weird. Where you can create a demand and this. I'll give you an example. Lockers are not that common even today, even after Covid.

[B]

Yep.

[A]

But you have to remember human nature, which is, you know, people pay less attention to something that's cheap and are more careful about their selection when something's expensive. And your locker is your cheapest unit. So it's the entry point. So because it's the entry point, some people select it simply because it's the cheapest unit. Yeah, Right. And so we did a study at one point, I don't know, a year ago or something, looking at lockers. Lockers are, if you don't know, blockers are 5 by 5 units cut in half horizontally. Right. So you get two of them in a 5 by 5 space. So it's 25 square feet, just like a 5 by 5. But you may get $45 and $45 and you may not be getting $90 for a 5 x 5. You might be getting 65. Right. So you lease up one. Yeah. You're not, you're not making the same, but you lease up both of them. You're. You're making quite a bit more per square foot. Like a dollar more per square foot. So really interesting to look at that and know, you know, this doesn't make sense to go overboard because obviously like the bank, they like what looks good on paper. So you, you couldn't build a whole facility of lockers. Obviously you'd never fill them up, but you might kind of Play your odds, push a little bit and see how many you can fill. Because the market doesn't have any.

[B]

Well, that was statesman.

[A]

Yeah, exactly.

[B]

I went, they're like our smallest unit. She's like, I. Every day she's like, there's a little more turnover.

[A]

So there's ups and pros and cons, but at the same time, because it's your cheapest unit and kind of playing with human nature a little bit there and because no one else has them, you can kind of figure. You have to figure that one out.

[B]

Yes.

[A]

The other units, they're all common sizes. You can do your own, start study, figure it out. These you, you kind of play with and, and build as many as you feel comfortable with and maybe cut a few more down.

[B]

And on one hand you have a monopoly. On the other hand you don't know the size of the market for that monopoly necessarily. But you do know it's there, all.

[A]

The supply, but you don't know the demand. To figure out the demand.

[B]

Would that be a good one to do like expansion or like phases like you were talking about?

[A]

Yeah, we typically do it phase, phase approach. We'll take a few 5x5s and say those are going to be lockers, you know, but you know, for every 5x5 you go up, you get in two lockers. So it can add up fast. So you're not really giving up that much space to try it out. We've gone overboard. We've gone. We've built one before where we had too many lockers, we couldn't fill them all up. But you know, in hindsight, the decision was still from a revenue standpoint. It still, it still made sense.

[B]

Yeah, because the revenue per square foot. So high.

[A]

Exactly. It's like $4 a square foot.

[B]

We bought Middleton Road. When we bought Middleton Road, the. That the inside middle of those 1, 2, 3, 4, 5, 6, 7, 8, 9 buildings, something like that in that full middle. And half of those were five by fives and they built in. You're talking like 255 by fives. This isn't a rural market or a more rural market. And I don't know they did it on a spreadsheet because that clearly. Good.

[A]

Clearly.

[B]

And nobody in that market wanted that. This is not high density. This is, you know, people with toys, everything else. All the big units filled up and they had 40% vacancy and basically all of it, 90% was held in the five by fives. And so we had to buy it and. Or we didn't have to buy it. We bought it because it was a great option. And then we turned the 5 by fives though into we, we literally converted them into 5 by tens, 10 by tens and immediately went up to 90 plus.

[A]

Done the same thing before. Yeah, I've seen it in many places. Sometimes these facilities weren't even built recently. We had one just like that. It was five by tens was the problem child and they were pro. The facility is probably 40% five by tens. Yeah, it was crazy. Yeah. And they weren't full, obviously. They were 12, 15% full. Like okay, we'll leave 30% of these but the, the other 70% we're turning into 10 by 10. And sometimes you don't have to spend the money to like go put in a ten foot door.

[B]

Yeah.

[A]

You could leave the five foot door and just make one of them not work.

[B]

Yep.

[A]

You don't have to go to the effort. Just take out the middle, take out the middle wall. And so people don't really think of this, but it's a huge value. The moment we switch them to 10x10, they're full.

[B]

Well, and it goes to show how this one metric occupancy, I mean so far that's the only thing we've talked about and we're. But it ties into because it's not, it's not simple. If you're in multifamily and you have a huge multifamily complex and the differences are you have two bedrooms, three bedrooms and one bedroom and then you know, two baths and one bath and that's it. You, you have four products. The customer is all the same. It's just how much of the space they want.

[A]

Right.

[B]

And that's it. You don't. Right. You don't have any more storage. Isn't like that. So occupancy in that case is a lot simpler. What occupancy are you at? 90%. That really speaks basically to the whole. Right. There may be some differences, of course. Like no, people in this market don't want a one bedroom, one bathroom. They want, of course, sure. But, but it's different when you have 15 products that service contractors to people moving to my ski storage, college students to, I mean, climate controlled wine storage. Like there are so many uses and different products and how they're done that a lot of times in the market, when you look at it, occupancy isn't exactly telling you what it you think it is. And that can be really hard. The only way, like you said, is you got to just dive into it, break it down by unit type. What is the occupancy by unit type in what area? What does that mean? Because if you look at, you know, the statesman, if you went this large conversion we did, if you go three miles one way versus three miles the other way, the rate goes to over $2 a square foot the other way it goes to 80 cents. Not even three miles. We're talking like two. Right. It's just two miles that way, two miles the other way, and it goes from two plus to 80 cents a square foot. Obviously that sounds like a little. Because you're talking about $2.30 versus 80 cents. But on 100,000 square feet, that is astronomical.

[A]

Completely.

[B]

Completely.

[A]

We're talking tens of millions of dollars value exactly between those two metrics.

[B]

And yet you're going to. This is within a four mile radius here. But the customers, the product type, you're moving from high density, multifamily, low inventory, like not a lot of storage to then you get further out and it was overbuilt more and then that makes rates go down. It just, it's really sensitive.

[A]

Or it could be something as simple as the direction where the rates are higher. People have HOAs and they can't store stuff in their yards and they don't. Can't have a shed in the backyard and they can't park their cars outside their house.

[B]

Yeah.

[A]

And this way they don't. It could be. There's all sorts of factors that could play into why that happens. It could be incomes in one area in one zip code versus another. Sure. But a lot of times it's stuff like hoas that, that dictate what people can store in their own home or out around their own home versus what people just throw in the backyard in a shed they bought at Lowe's. Right. So there's is a very different clientele sometimes because of hoas.

[B]

And that shows too, like your absorption rate. Like out west. It's kind of interesting because, you know, my wife's from the Midwest. We go to the Midwest and back east and the houses are older than our state. Like, you know, it's like crazy here. Everything has been built in the last 40 years. Like everything. And what that means though Is we have HOAs are just standard out here for the most part because everything has been built and they built with that in mind. You go to places in the Midwest and you have a city and there's no HOAs at all. And you can really see the amount of utilization on a per square foot Per capita difference. And it is big. Really big.

[A]

It's true. Yeah, absolutely.

[B]

So when you're looking at markets, I mean those are big indicators that can tell you what kind of demand there may be. Like, what's the driver of that? Demand is a huge one.

[A]

Jumping back to surprise, that was a big driver for the RVs. And surprise, I mean major HOA. When we had the grand opening, driving through that, I forgot the name of the neighborhood. What's the really fancy neighborhood anyway? Brothers, you go, you drive. And they literally have permanent signs. You know, HOA meetings every Wednesday at 7. I'm like, I wouldn't want to live in this neighborhood. But that, that is a way of life out there. And so yes, storage is in much higher demand.

[B]

When we went talk to them like so when we were looking at it, we went and met with them as they were building out this ginormous beautiful neighborhood, high end houses and walked in, we said, oh, so what do you think about, you know, RVs? Everything else? And they go, we have a strict no RV policy. I'm like, okay. And then we went and you looked at the stats in that region, sold the most RVs in all of Phoenix was in that area. And so we started going around and all these HOA are like, no, no RVs. So the difference between that and in a city where even if RV consumption is the same, but the HOA aren't as strict, I mean you could cut demand by 60%.

[A]

Oh yeah, people will find a way to park in the backyard out front, make a little lean to for it. They're going to find a way to not spend in some cases, 5, 6, $700 a month for an RV unit.

[B]

And so all of a sudden that's, that can mix you up. If you go, they buy so many RVs and such expensive RVs, that should mean. But it doesn't, it doesn't actually lead to that conclusion.

[A]

That's right. Yeah.

[B]

So when you're looking at a facility in a market, since we're talking about occupancy, we're talking about demand. Demand can be really hard today for the fact that rates have been so weird over the last two years and diverged from occupancy, could be high. Why rates are still going down and you're like, what? That never happened before. What are your key indicators that to you says demand? Not like just noise, not like just, you know, what are the indicators and what is the relationship between those indicators that make you go, okay, this is an area in which we have Demand. We can see it, we can measure it. What do you look for? Technology is the name of the game and how you operate your facility and the efficiency at which you can operate will depend on the technology you use. Your property management system, what it allows you to do and what you have access will determine the outcome of how that facility performs. That's why we go with Tenant Inc. With their product Hummingbird because they are the best in class when dealing with automation. When dealing with move ins customer acquisition process, improving my online acquisition process, they are bar none, the best. So if you are looking to automate your facility or operate it in the best in class way, make sure you guys are looking at Tenant Inc. And their product Hummingbird. The link is, is in the description.

[A]

Well, there's lots of things and I think this gets a little outside of operations and back into, you know, acquisitions and how, how we're thinking about when we're going out to find a facility for sure. But either way it's the same, same thought process. And there's a couple things. One is you want to know what rates are doing because occupancy could be going up or down. But if rates are. Are continuing to trend upward, demand is probably there.

[B]

Yes.

[A]

There's a lot of things people can do to manipulate what demand looks like when they're messing with the rates. But if rates are consistently going up, that's a good driver. Now they haven't been for months anywhere.

[B]

Yeah, any.

[A]

Even in the areas that have had some good months, they're spikes and they drop back down and they're just, they're. It's crazy how volatile. If you go look at charts right now, in a lot of our markets, the rates have been just extremely volatile.

[B]

And that didn't ever used to happen. That's. That never happened before.

[A]

It's because we've introduced all this new technology and we're all playing with a lot of the same tools and we're all, until recently with some of the stuff we've been doing, we're all using the same two or three metrics to, to try to drive rates up and down. And so people are. One guy does this and the other guy does that and then this guy does this and he reacts to it. Right. And so it creates this really weird, volatile market. So if rates are trending upward, I feel really good people still go back to the tried and true, but not as accurate as people think is square foot per capita number. Right. You want to kind of know is there, is there population growth, housing growth in that market and a decent square foot per capita, it matters. It's not the only driving factor by any means, but it does matter. And then you've got another weird thing like, like our newest facility, Collegetown, right now we're seeing lease ups at just ridiculous paces. Yeah. But it's because it's May. Like graduation was last week. You know, all these people are going home for the summer. So of course we're going to have ridiculous lease ups in this moment in time, but expect all those people to move out in August. So how do you, how do you mess with that? Because you got to, you got to find a way over time to create demand from the local population.

[B]

Yes.

[A]

And not demand from the student body.

[B]

Yeah.

[A]

And in order to do that, you got to be really strategic about how you price units right now in this season when they all need them. You want to jack them up really, really high. Yep. And lower them in seasons when students are probably not renting and locals are, and be more easy with them so that you can create your own sort of rent roll of the people that you want to rent. Yeah.

[B]

I mean, this is really the key winner when you're talking about operations. Really. Operations just means rev. Right. You're like, that's it. Like operations goal is to increase. No. So at the end of the day, we have the bottom gross revenue and then you kind of make your way up from there. The key is, right, like really maximize that revenue. That's really going to be driven by demand. And understanding how to maximize that revenue will be based upon where individual demand is. And I'm not talking in the city overall, necessarily as even in units, because that's what we're going to do. We're going to say this unit type has so much demand, we can really push that revenue per square foot to make up for another unit type that doesn't have as much demand and have to lower it to entice. Because that one we're going to focus more on occupancy, getting people in. Right. And so you're playing this game with those different products where you're like, how can we maximize one and how can we lower it? And if you don't understand that demand, where it's coming from or those cycles, you can't maximize it. Understanding that our value per tenant, so what is our total value that we get from a tenant will depend on rate. It's going to depend on time. It's going to depend on ancillary products. And when you look at what you're talking about if you have seasonality that is so extreme, like a college town, you got, you know, spring, summer basically, and you're going, our average lifetime value of that customer is six months at that rate. Whereas if a local is two years, you could do a much lower rate. And the long term value, the actual value of that customer is dramatically higher. And if you don't know that though, that will very much be reflected in your revenue, your ad spend, your everything.

[A]

And it's interesting because when you first take over an asset, you don't necessarily know what your lifetime value is. You don't have any metrics for churn, like people leaving just organically, you know, people that just don't need storage anymore. You don't have those. I mean, you could look at what the seller did, but you're going to do something different. So it's not exactly an accurate picture, but once you figure out those, you're in control, like as long as you know how to use those metrics. So let's say your churn rate is 3% a month. Let's use an easy facility, 100 units. So three units every month are going to turn over no matter what. That's just. They don't need storage anymore. They finished with their use case for storage. Right. But then you're also raising rents like dramatically in some cases on certain units. And you have nine people move the next month, you know, three of them, most likely we're going to leave anyway. The other six you sort of forced out through your messing with the revenue. Right?

[B]

Yeah.

[A]

In a, in a college town, you, you really want to focus on pushing rates right before that need goes up. Because like you said, those students are only going to be there three or four months out of a year. Right. Now we'll probably get a tenant in the winter, but at a much lower rate. Yeah, but let's assume we didn't. Let's assume that unit only was full for those four months. You want that revenue per, per month to be very, very high to make up to match the lifetime value of someone who stayed two years at the lower rate. And that lifetime value can obviously be wildly different based on market rates and product type, climate controllers, parking. Yeah, drastically different. But lifetime value, like let's say in our portfolio, you know, it's 17, $1800 per person. Yeah, right. Per tenant.

[B]

Yeah.

[A]

That may be eight months of stay at this rate or it might be 24 months of stay at this rate. But that average lifetime value is very valid, is very valuable to know because that's your target. You need to be at that or above that. And if you're not, you need to be messing with rates to figure out how to get it there.

[B]

You know, this reminds me a lot too of. There can be this problem where you're confused. You don't want every tenant. You know, you have 200 units in a market that has 20,000 people. Like, you don't. You don't want an tenant. But at a time like the busy season, you can be getting bad tenants in lieu of good ones because that demand is so high. Like you mentioned that, you know, I think about this. At the college town, the students are overwhelming the core population.

[A]

They are.

[B]

And yet the core population, you're still in the busy season. So if you don't have a pricing structure to reflect that, it's out of control. And by out of control, I mean, you may look at it, say, we're doing great because we're at 100 occupancy. And then in the fall, you're at 50% occupancy and you're going literally, what.

[A]

Was going on with the site before we bought it and. And will probably for one more season. Right. It's going to take a little while to figure out the right tools and levers to pull. Yeah, but that's what was happening. They were literally going from nearly 90% occupancy, 95, all the way down to the mid-40s.

[B]

Yep.

[A]

That is all wild.

[B]

Wild.

[A]

But it's a college town. Yeah. There's a logical reason why that was why that's happening. But your goal over time is to create. You know, you get to maybe only get to 80 instead of 90, but instead of going from 80 to 45, you go 80 to 70. Right. And so you're able to.

[B]

You're able to. Yearly occupancy is much higher.

[A]

Exactly. And so we actually, in a site like that, where we know that going in, we're assuming will never be 90% full as an average.

[B]

Yeah, yeah.

[A]

Like we just.

[B]

There'll be.

[A]

Maybe we'll get maybe, but we can't control that. That would be like, nobody builds any more storage for 10 more years. And it's just demand is that high. But with that kind of turnover, you have to assume your average occupancy is going to be a little lower. 80. 85. Right. Not 90, not like the rest of the portfolio in markets like that. And so you have to. If you don't do that on the front end, you're setting yourself up for failure. Because you're, you're all your numbers going.

[B]

To be off and you got to understand the difference in those customers. I mean if you're a college student versus local, how are you pricing that? How is that marketing in lined like, you know, your avatar in every market may be very different. And the problem is you may have multiple avatars. So I may have an avatar for climate controlled. Right. I may have an avatar for, you know, drive up mass units which may be businesses or something, and then another one. But you can't market to fill up with the people that you want if you do not have those avatars and if you don't have the pricing structure for them. So you know this idea lots of times that can be hard when you're starting out. So instead we do it through revenue management.

[A]

Exactly.

[B]

We get these people in, we can see who stays, who leaves, we can see the reason why. And over a few seasons you've really said, okay, we know where in the city we're getting the best customers from, we know what they look like demographically, we understand what marketing works. So that's the whole like when you're.

[A]

Dealing with, which allows you to lower expenses because now you're targeting your marketing for your avatar, for your product type and so you can lower advertising spend, you can lower other expense costs. And we've been talking about the revenue the whole time. But another, another reason you, you don't want every tenant is some, some are going to go delinquent every month, month over month. We, we kick people out all the time. All the time, all the time. If they call in and they're trying to pay up and they're like, hey, I can't afford the fees, I might waive the fees. But you're not going to stay. Yeah, I, I, it's not worth the operational effort to deal with you every month.

[B]

Absolutely. Just is, just not.

[A]

And so especially as you grow a portfolio, I mean if you had one site and you're trying to maximize it, I understand it's your first property, maximize it, that's fine. But when you start gaining efficiencies through volume, you've got 30, 40 properties, millions of square feet of storage. It's not worth the effort of dealing with that same customer every, every month. And so we literally just say no, we're going to give you no determination. You can pay your rent only we'll waive the fees, but you got to leave.

[B]

Yep.

[A]

Things like that, you have to, I.

[B]

Mean I've been in this, I'm sure as you, you have a new facility, you're trying to fill it up. It's just take everybody. Like lots of times in the last three years we've even had where we open up and then you had a public storage that, you know, open up and dropped rates by 60%. You literally can't get occupancy unless you are competing on that street rate. The problem then though becomes is depending on your pricing structure, you're going to attract a certain type of tenant. And when you are really cheap, you attract in general tenants that are, funny enough, delinquencies go up, even though it's so much lesser, less, they don't stay nearly. The rotation is huge.

[A]

Like, so how do you mitigate against that? Yeah, one of the questions, one, that's something we, we study a lot. Right. We want to know what, how, how technology can help us, how certain processes and policies can change things. So recently we went back and said, all right, we're done taking cash. Because overwhelmingly the people that pay with cash are the ones that also go delinquent.

[B]

Yes.

[A]

Or doing ID verification and ID checks because it's sort of a de facto credit check. You know, if they don't have an id, they probably aren't going to pay in a few months too.

[B]

Exactly.

[A]

If they don't have the ability to set up autopay or the comfort setting up autopay, maybe we just don't want them. Right. And so we've really gotten aggressive on some of those things because it over time creates the. A perfect customer base.

[B]

Yes. Right.

[A]

And the more easier customer base is, the more we can scale, buy new facilities, do new things, remain efficient, higher margins, it's awesome. It just takes time.

[B]

Now, how does technology play in this overall focus on curating the perfect tenant with your facility, making it a good product that can compete in the market. Is there a relationship between technology and good tenants and high paying tenants? Is there or how could you utilize that to try to achieve those things?

[A]

Well, the answer is obviously yes, but people may have different goals than we do. Our, our goals is efficiency. We want, we want low cost, low expenses per tenant. We do want obviously high revenue per tenant, best we can. So there's different technologies. There's the revenue management side where there's a lot of tech that goes into and we spend a lot more time here than a lot of people do, probably studying, you know, where our tenants are coming from and what other options they have between them and us. If we were to raise the rent a little too high and they decide to leave. Like what options do they have? If, if the facility that's between them and US is $20 higher than US, I have zero problem raising it to at least that rate. Right. Because they're not going to leave. Like that would, that would be a waste of time.

[B]

Yeah.

[A]

But if we're going to go raise the rate 50 higher than the facility that's actually closer to their house, maybe we take a pause and don't go quite as aggressive. So that's where technology can play. On that side, on the front end side, we, we try to streamline our rental process, make it super easy over the phone, like on your, on your smartphone. You're renting. Right. And by creating things like requiring auto pay, like ID verification, like having a smartphone, like you're automatically sort of ruling out people that you wouldn't have wanted as tenants anyway.

[B]

Yeah.

[A]

And all those things stack up to create more and more of the tenants you want. Sometimes you blacklist certain types of tenants that have been at one of your other facilities. We blacklist people. It's very important to over time refine what you're doing. Another thing we do is we're trying to train the tenant on the front end how to use the technology.

[B]

Yes.

[A]

If you handhold them during the rental process, they're going to call again when they get to the facility and encounter a digital lock. Yeah. Or you know, a QR code rental process. Or a QR code leave, a review process. If, if they're stumped on a simple five minute rental process, they're going to get stumped when they get to the facility. So what we try to do is we try to help them help themselves. Yes. And so once they've gone through it once, they're less likely to need you to keep hand holding them. Because we don't want to handle our customers.

[B]

They understand the system.

[A]

We want customers that are, that are thankful for the technology and not frustrated by it.

[B]

Yes.

[A]

And so it's okay if we lose a few on the front end, if we're, if the people coming through the funnel are the ideal customer.

[B]

Because this is, when we talk about curating that tenant base, it ties into these types of occupancies that we were talking about at the beginning. The physical, you know, the economic and then the like doors per se. Right. In order to really take care of the economic part, that is that curating and this is, I, I think if you were probably to say the one thing that I notice about operators that have really high performing facilities, it's probably that occupancy right there. They can get not just the physical occupancy up, but they also the doors, meaning they can get lots of the smaller high revenue per square foot doors sold, not just the big ones. And so your physical space is, is filled. And then they over time can maximize the revenue without having like shocks. So a lot of people don't want to raise rates because, because of the shock that it causes. I raised my rates and I had 5, 6% of the people move out. And now I'm flipping out. I'm never doing that again. Right. And there's a bunch of things like that I look at. I'm like, well, okay, maybe not give them all a rate increase at the same time. Or if you do, it's because you need to get inventory. So timing, when are, are you doing it at, you know, the end of summer. And then you lose. And now that, that vacancy just gets worse and, and you got to deal with it through the whole year. But how you handle it is really important because two, when we take over a facility, most of the time the tenants that are there are not our target tenants.

[A]

No, they're not.

[B]

We have to actually like get new tenants in. So it's this balancing act of like we've done before where we're like, we could rip off the band aid and we did that once and we lost. I, I mean it was crazy amounts. It was like 40 plus percent of the tenants.

[A]

And there's multiple band aids to rip off. Yes, there are rate increase band aids that you got to rip off. There are converting to auto pay, getting rid of cash. Right. All of these things are going to be shock moments for someone who's never experienced that. They've been the tenant for four years with the old guy and never had one rent increase. Been allowed to pay cash and come in late and do that. And we're like, that's all out the window, guys. Yeah, we're not doing that.

[B]

I've been here for 10 years and I never got a rent increase. And they're all mad and it's like you should be saying thank you. Like how much has inflation gone up over that time? You never got a rent increase. Yeah, like taxes went up, everything else went up. And when you buy a facility, you are not paying what the last owner paid. And so it, the pricing can't be the same. And you don't like the, the old way of doing it was low cost. We, I mean we were building storage facilities at 30 bucks a square foot. Nice Ones. I'm not talking about gravel. I'm talking about class A at $38 a square foot. The rates you can have.

[A]

Yeah.

[B]

When you get your base product, base that low. Right. That's not the world we live in anymore. I mean, you're talking that same asset today would be $100 a square foot. And that was in 2016. 17. It was not. We're not talking 30 years ago. Right. So that comes as a shock to tenants when you're buying new facilities, you're introducing them to a new world of technology operations. And so it's this mix between a carrot and stick. Right, Right. First of all, we have more complaints when we gave a rate increase at 4% on tenants that hadn't had a rate increase for five years than we get on tenants that are getting 12% rate increases and that get a standard rate increase every nine months. We don't get any complaints. None. We don't see mass retraining.

[A]

Your customers, they know they're trained.

[B]

It's part of it. They know what to expect. And I think that this trying to appease the customer. Right. That's not going to work out well for you because you will never be able to do that.

[A]

It's not. And we've. We've had to even churn our own employees over that before. You know, you know, the employee on site can feel bad for the customer. They're hearing the sob story. They're hearing the reason why they can't pay the new rate or whatever. And so if you don't have a. If you haven't trained your employees, the ones interacting with the customers, on why you do it, what you're doing it for, how it matters to your investors, to your shareholders, whatever. They'll just want to, you know, oh, I'll put your rate back down. They work for the customer instead of for you. And so you really have to do a good job training your people, too, as you scale.

[B]

Absolutely.

[A]

You need employees that understand noi, that understand we're doing why the business plan as a whole and don't just cater to that one customer that's throwing them out a sob story.

[B]

And, you know, I get it. We had a. A manager. The tenant walks in and she's like, my mom just died. And she's like, I know. It was like, I know. I have a rain crease. And our manager is looking at her, she's sobbing, and she's like, listen, I feel for you. The only problem is that's the second time your mom has died. In the last six months. You just told me this six months ago. I even had a note and we give you off. She just died again. Right. And so, you know, it was a, a great lesson for that manager to look at her and go, I just gave you a pass on a late fee because, because your mom died. And you know, obviously the tenant stops and then gets mad because that didn't work. But it's also a strange thing in storage. I don't know how this got built in from early days or whatnot, but people don't feel like they need to pay. Like, no, I don't get that in storage. I don't understand why. And when we ask them, does your landlord make you pay? Yes. Does the grocery store make you pay? Yes. What happens if you don't pay your taxes? I go to jail. What happens if you don't pay your light bill? They turn it off.

[A]

They.

[B]

Then why do you think you don't have to pay for your storage unit that you're renting?

[A]

Exactly.

[B]

But it is actually a thing, especially in when you get away from institutional grade operators. So the further out you go from big cities, things that becomes very common. The reason being is they've all been trained because the storage facility that they were at had a basis of $15 a square footage. They had no debt on the facility at all. And it was just people they knew, they were making so much money in cash flow, they didn't really care and they didn't want to make anybody mad. It was just, I did this on the side. It wasn't really a business for me. I was doing this because it was easy and cheap. And so I don't want to deal with it like, because in the management, the operations side, you give, especially how they used to do it. You gave a reading rate increase to Everybody. You have 300 people that are calling, emailing, walking in, mad, because they've never got a rate increase before, all at the same time. It is so overwhelming to the operator or the manager on site. But it shouldn't be like that. The problem is they let it get to that point.

[A]

Exactly. If you're doing it from the beginning, you should never be giving out 300 on one facility at once. Unless the facility is like 4000 units maybe, but you wouldn't do that. You're going to be sending them out, you know, after the first five or six months the customer's been there, they'll get the first one. So they're already staggered based on when move ins happen. Right. And then Every three or four months after that, maybe you do another one or five or six months after that. But they're staggered. We're sending out. Yeah. Hundreds and hundreds of rent increases, but they're like 10 at this site and 40 at this site and 32 at this site. Not. Yeah, not all 300 at a property.

[B]

I mean, we did this at a facility we took over because it was the state one Boise. And the state had like no money. They didn't have to pay taxes. They didn't have to. Sorry. So. Yeah, exactly. So they never improved it. They never did anything. But they also, because it was the state, they never gave rate increases because they didn't want to make their constituents upset. And so they had low rates. Never gave a rate increase. We bought it the same day we gave a rate increase. So it was still the same name. We hadn't changed the name, anything else. And we gave huge. It was average. Was like 73% because they. The state was forced to sell it because all the storage operators are like, you're operating at like 40 our rate but you don't have expenses. You're not paying for anything. So you can. It's totally unfair. They got in trouble for it.

[A]

Right.

[B]

It was really bad. So we just brought it up to market. Just what the. Everybody else had to do with their expense load. And we had somebody that came in was like so ticked, Right. And he's like, that's it. I'm moving. I'm going to the storage facility on the street. They're way better everything else. So they went, they left and they went to the storage facility down the street and they paid more at. And it was our facility.

[A]

Yeah.

[B]

They went from our facility to another one of our facilities and they paid more to move into another unit.

[A]

Yeah.

[B]

And it shows. That price, though, wasn't actually the reason. It was the shock of it. They paid a premium, literally more rent at one of our other facilities. That's how we know.

[A]

Probably a reason to talk about tactics. So. Yeah, whenever you take over a site, you really want to be thoughtful about what you do first. So you mentioned carrot and stick. Definitely give them the carrot first. Like don't immediately go hit them over the head with a price increase. Especially if you know you're going to do things to improve the property.

[B]

Yes.

[A]

If you're going to make. If you're going to improve the curb appeal, the safe esteem, all of them safety. Or you're going to add like digital locks or you're going to. You're going to Give them new tenant insurance plans or something that's going to like, give them some value.

[B]

Yep.

[A]

You want to make sure that they at least are aware that, that understand it or that it's already been implemented before you go start doing things that they're going to be upset about.

[B]

Upset about.

[A]

And so that way, at least it's the carrot and then the stick and not the stick first, because they will leave. They will leave if you don't. If you just shock them and you don't give them anything in return.

[B]

And that didn't used to be nearly as big of, of a deal until reviews came in. And that's what it started to be, bigger deal. And it's, you know, one of the reasons why, especially at this one, we didn't change our brand name until six months after we'd done all the rate increases, got all new tenants. Because what they did is they went on that site, that brand, and you had all these bad comments. We killed the site, put it on ours, then afterwards and, and moved on. But we, you know, when you're dealing with tenants, the value proposition we're coming in here are the reasons why, which even at that one, we were honest. We have to pay taxes now, everybody, we have to fix this thing up because it's been falling apart. They put no money into it, and we're upfront with them. Here's why, here's the plan. Especially a lot of operators today. I know insurance guys, my insurance double and my taxes went up by 50%. Like, we have to give rate increases to pay our bills. And these are not bills that we have a choice in. We, we can't say no to the tax man or the insurance company or the utilities. Exactly.

[A]

Yeah.

[B]

So, hey, this is happening. Here's what we're trying to do for you, though, because we understand that, you know, you are, you have to share this burden. And so here's the things that we're doing. So having a approach where you go about it and say, this is, this is the reasons why, here's the goals, what we're trying to achieve, um, it doesn't mean you won't have people that are mad, but at least you have people. And we've even seen it in the comments, like, they'll put in a negative comment, they'll say, you know what? I was at this place forever. Never just got one. I understand why they did it, because. And they listed the reasons we told them, but I'm still not happy about it. I wish it could have stayed the same I love that because anybody that reads that comment is going to go, oh, that sucks. But I get it. Right? Like, and so you at least give reasons as opposed to just greedy money hungry tight. Because that's what the tenants will say.

[A]

And again, going back to training your employees to say the right thing, the right. Because if you don't tell the customer the right reason or explain it well, then they will just go leave an irate review with no logic, no. No reasonableness to them at all.

[B]

And the manager may try to make themselves feel better. Like tell the tenant, listen, I don't want to do this. These owners back in corporate and everything that happens all the time. And then they go on reviews and they're like, we love this manager. Corporate screwing us all, everything else. And that's even worse.

[A]

Yeah.

[B]

Because now the manager is throwing you under the bus. Right. And it's at the expense of the entire asset.

[A]

That's right. And that does happen. Even, even here we've had it happen. And that's why we've had to have proper training, proper reminding of what we're doing and the, the real business plan. It's very easy for your operational arm and your investment arm to be very.

[B]

Far apart, very far apart.

[A]

Almost completely mutually exclusive. Yeah. But they shouldn't be. They should know each other. Integrated. These guys should understand the business plan and the business plan should consider the operational efficiencies and what's possible and when it's going to happen so that you can make the most action accurate business plan in the first place.

[B]

The integration between particularly those financial metrics. Like, you know, we tell everybody this all the time. This is not a, like we hear things like, oh, storage is a cash cow. It's like an atm, it is a business. And to get to those things which, yes, storage is absolutely can be this great. More of this automated, you know, streamlined and all the reasons we love it. But let's not fool around. This can take years to get there. When you buy something, the installation, you have to set up processes, systems to get there. That's why we have this podcast. That's why we're literally talking about it. We want you to get there.

[A]

Yeah.

[B]

And also to realize that saying, I'm just not going to give rate increases, focus on occupancy, like that actually does not solve your problems. It makes them worse. You get the worst kind of tenants, you get higher delinquencies, you get other problems in the facility that are really bad that you don't want. And then when you do Anything to change anything there are irate, they go online and they destroy you. And so I think a lot of times, and I have sympathy with all of you one off operators that is sitting in your facility right now listening to this, when these things happen and all of those customers come in and start yelling at you because I, I've been there, I've been yelled at. I've sat there as we have lines, lines of tenants that are coming in to chew us out. And I've sat there trying to de. Escalate things. It's not that I am saying that that's not real. That's not important. I am saying though it was either because we took over a new facility and had to do it or we allowed it to get to that point. And when we have our processes, system standardization of rent increases stuff, we do not get that. And we give average rate increases that are higher than we ever. I mean we used to give 3, 4% maybe and we would get yelled at. Now. No, it doesn't happen.

[A]

No, that's right. And I think to those people that.

[B]

Manage their first tenants, not the other way around, don't let your tenants manage you.

[A]

That's for sure. Yeah. And talking to a lot of your audience, they just bought their first facility in the last year or two. Right. And just be patient. It's going to take some time. Like. Yeah, it really does take a lot of time to retrain tenants. I always throw out the funny little analogy or little story. The dumpster, it was such a little thing. But at a facility we wanted to eliminate the dumpster cost because we were going to run it remotely.

[B]

Yeah.

[A]

Okay. So retraining the tenants that there was no longer a dumpster on site took about nine months.

[B]

They just threw trash on the ground.

[A]

They would throw it where the dumpster used to be.

[B]

Yep.

[A]

But then eventually churn and retraining and talking to the customers that just went away. It just stopped happening at some point. And then we didn't need a dumpster anymore. But a lot of people wouldn't have given it nine months. They would have seen all that trash.

[B]

Pile and they would first two or.

[A]

Three and they would have put the dumpster back and they wouldn't have gained the efficiency that, that we gained.

[B]

Yeah.

[A]

And so I think it's very, very important to remind people to be patient. It especially if we have a downturn or you know, markets, rates start going down, you just may have, you may have added more than the six months they went down. You may added 18 months to your business plan, when the rates go down for six months, Absolutely. Takes a long time to come back from that.

[B]

Long time.

[A]

A long time.

[B]

And it is line by line, because the feedback loop, you guys, to curate the proper tenants for. For your facility in your market. And two, by the way, when we're saying this, everyone, I don't want to be. I'm not saying you want to be the top rent in the market, because your asset may not get that. We're in markets where we are not the best facility. So even when we're looking underwriting, we're like, oh, yeah, they're at $2 a square foot. We're not going to be because we can't drive it. But that doesn't mean we can't optimize to where our asset and our market should be. So we're trying to get the. The top revenue for us in that market. A lot of people, though, they. They do that by a gut feeling, not by data. So they're not curating and seeing those results, getting those feedback loops right over time. They just say, this is the right rate for us, and that's where we find the money on the table. Because you're going, no, actually, it's not. You're off, and it's all there. You're just not taking. Taking it because you don't want to do the work. You don't want to get the negative feedback. You don't want to put in the effort. You don't want to put in the energy. You don't want to put in the capital.

[A]

Technology.

[B]

Technology, which I get. But the. The spread of what you're leaving is huge. And we. We talk about this where the net income, right, $50,000 more. And somebody may be going, oh, 50,000. I'm already making 150,000. But 50,000 at a 5 cap. I mean, holy cow.

[A]

Well over a million dollars.

[B]

Yeah. Yeah, that's over a million dollars. So th. And. And then take it another step. 50,000. If you have 100,000 square feet, 50,000 on your NOI. What is that on a per square foot basis? 50 cents. No less than that on 100,000. 50 cents a month.

[A]

Let's do math.

[B]

Yeah, I know we're doing math here in the middle. Sorry about this, but you're talking. That's literally, what, six bucks a square foot a year? Anyways. Yeah, we're not gonna sit here and do it. But the point being is it seems.

[A]

Like a little $50,000. To give you context, though, on a facility with a few Hundred units, like a pretty average facility. You can add $50,000 of revenue but with nothing but ancillary income. Like you can just put in some effort and bring in protection plans and mess with your, your rates just a little bit and try to get people paying auto pay so you don't have so many people going delinquent and you're having foreclosure and bad debt. Like you can do little things and $50,000 is like, you can find $50,000 really quickly.

[B]

Really fast, really quickly.

[A]

And then of course we introduce things like digital locks and lower our payroll by at least $50,000 in some cases more than that. Yes. You have other payroll costs, you have people on site. It's not fully remote ever, but you can eliminate your full time manager with some other technology. So $50,000 to find $50,000 is pretty easy. Yeah. On most facilities and you're talking about.

[B]

The difference of 30 to 50 cents a square foot. And, but it's a, it's a leverage thing and that's how these activities are. When we talk about the individualizing rate increases, standardizing, all that stuff, they, they have small effects per unit, they have big effects per facility. They have massive effects on a cap rate and, or net income and they have astronomical effects on a cap rate. So it's hard when you're in the facility operating it. You know what, it's really not. 10 bucks a month isn't worth having to deal with it. And that $10 a month was $500,000.

[A]

Yeah. People, people don't realize when, when you look at a P L every dollar of operating costs versus the capex costs. Right. If you fix something once and it saves you x dollars per month, that x dollar per month is at a cap rate. And so you really have to take every potential thing that you're looking at and consider is it one time cost here worth this savings per month? And it seems like, oh, I wouldn't spend a hundred thousand dollars to save $10,000 a month. But you're like, well actually yes you would.

[B]

Yes you would. Yeah.

[A]

Because that's an overnight savings. Yeah, quite literally an overnight savings. If you were genuinely saving $10,000 a month, spend $100,000 once, like instantly.

[B]

I mean, it's $10,000 a month. You're adding on millions. Yeah, I mean millions. That 100,000 would net 120 grand at.

[A]

You know what's what a 6 cap 15, 20 times the value. Right. So you're, you're talking about 100,000 turning into quite literally 1.7, $1.82 million of value that you just found because you spent $100,000 once. It's a no brainer. But it doesn't seem like. It doesn't seem like really.

[B]

Yes.

[A]

Compare it side by side, side like.

[B]

That and that essentially. Right. I mean that's really our business plan when we're looking at the capex to change the quality and that drives us into a different revenue level and then the operations to achieve that new level at that new quality and that yields an exaggerated outcome that essentially is our business model. I mean it really is right there. And it pays very well because of that exaggeration. Now it's not quick.

[A]

We don't.

[B]

It takes years. And the return though is so big that those years, it's not only worth it, it's beyond worth it. Now we have downturns like we've had in the last three years that just kicked everything that we had. That whole model. All of a sudden you're getting people, you have to. When, when it goes back and gets busy, you got to turn over the right tenants. We, we got to reinvest in different assets that we had to hold off as revenue and occupancy was going down. Kicks, we kicks three years out. We had to add three years onto it. And that's why that can be painful.

[A]

You may have a refinance coming up in those three years.

[B]

Yeah.

[A]

Now you got to figure it, you got to move things around, figure things out. Yes, it creates challenges when that happens, but when things go to plan it, it's the perfect model. You, you created enough value that your, let's say refinance event can get you all your cash back out. Yep. Go do a second one while still.

[B]

Owning that one and compound it out.

[A]

And that's your story. That's how people got wealthy in self storage.

[B]

It's amazing everybody. Hopefully we are helping you guys understand the relationship between these things and how that yield works. Once again, we're not saying it's just easy. Like you just put in $100,000 and you made 2 million because you have to pull it off with operations. But that's why we're here. So you guys understand it, you see the relationship and then know how. So thanks dude for coming on. Where can people go to find you? Where should send them?

[A]

Well, obviously if you're looking to invest Cedar cc, if you're looking for stuff on you, obviously they know where to go. And if you're looking for me, LinkedIn, probably LinkedIn yeah. Jonah Hall. Jonah put it in there. Yep. Thanks.

[B]

So we'll have it in there. Check it out, guys, and we'll talk to Jonah soon. Thanks, man.

[A]

Awesome.