The Storage Investor Show
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The Storage Investor Show
Assistant Manager to Industry ROCKSTAR with Beau Agnello
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DESCRIPTION
This episode delves into the evolving landscape of the self-storage industry, touching on market evaluations, shifting acquisition channels, and strategic management insights. Bo Agnello, COO at Go Storage It, highlights the importance of technological adaptation and understanding customer behavior for sustainable growth.
• Bo shares his extensive background in the self-storage industry
• Discussion on key factors that define a good storage market
• Shift in customer acquisition channels post-COVID
• Importance of optimizing websites for improved conversion rates
ABOUT OUR GUEST
Beau joined Go Store It as Chief Operating Officer in 2023. Before this, he was Head of Operations and Senior Vice President at a Midwest-based self-storage firm. Beau's self-storage career began at Extra Space Storage, where he held various roles, including District Team Lead, Division Learning Manager, Senior District Manager, and Division Vice President. He also served on the company's Product Innovation Committee and managed over 11 million rentable square feet and 88,000 tenants in Texas.
https://www.gostoreit.com/
https://www.linkedin.com/in/beau-agnello-62081b60/
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NEWSLETTER
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Hey everybody. It's Chris here with the Storage Investor Show. My guest today is Bo Agnello. He is the COO of GoStort, based here in Charlotte, North Carolina. They manage 158 properties over 11 million square feet. They've just completed the merger of Snapbox Storage as well. So, Bo, I'm thankful that you're here on the show. Yeah, thanks for having me Excited to meet with you in person. Awesome man. He's been the COo of ghost store for about two years now, but give us a little bit about your background and how you got into the business sure, I was not born into the business, I opted into it.
Speaker 2:But I've been in storage for about 14 years and most of that was with extra space storage. I started with Extra Space as an assistant manager in the Bay Area in the East Bay, california, at store 1371. I still remember the phone number too, because all of the collections calls I had to make. I think that phone number when I was leaving voicemails for customers is permanently in my memory.
Speaker 2:I'll forget my kids' birthdays before I forget that phone number.
Speaker 2:But started as an assistant manager for Extra Space and Extra Space has internal development programs and I was fortunate to be a part of them and grow through the organization. So from assistant manager to store manager and I did live on site in an apartment for extra space at a storage facility, no way and then a district team lead. So I was a trainer for the San Francisco Bay Area market and then the Pacific Northwest, from there to a district manager in training and my DVP at the time was Matt Harrington, who is now the COO of Extra Space. So I got to learn from Matt and just try to be a sponge and learn as much as I can from him, because he's like the storage guru. So I learned from Matt and then went to be a regional training manager or a division learning manager. So it was a train, the trainer role for the Mountain West region. Then back to the Bay Area as a district manager again for the Silicon Valley and San Francisco markets. And oh boy, what was next?
Speaker 1:Man. That is an extensive background.
Speaker 2:Oh, and it keeps going. I've moved all over the country for storage. It's been a really interesting way to see the United States. I think I've been to almost every state now for storage except the Dakotas, Alaska and Hawaii. But then I was a senior district manager for Extra Space in the Chicago land market, so the loop downtown Chicago down through the south side and then training new district managers for the Midwest. And then my last role with the company was as a division vice president overseeing the state of Texas, based out of Dallas, Texas, and then left Extra Space after about 10 years to move to a private operator. I was in Michigan, outside of Detroit, for a couple of years give or take and then now coming up on two years with Ghost Story.
Speaker 1:That's amazing man. So you've seen a ton training people being in different stores, different states, obviously, moving all over the the place. Let's talk real quick at a high level, just operationally, because that's obviously your specialty. I think of it this way when I'm looking at a deal and I think a lot of people as well when they're looking at a deal we look at the market, the location obviously that matters and then we look at the store and you know kind of what's going on within that trade area, etc. At a high level, what makes a good market in general. So I'm not talking about the trade area specifically, but just what's a good market in general as far as a story, et cetera.
Speaker 2:Yeah, generally I'm looking at who's operating the property today and then whether or not I think we can operate the property as well as or better than that operator. I think we all have that litmus test and so we'll look at it and say, okay, I think we can do a little bit better. But generally that litmus test, and so we'll look at it and say, okay, I think we can do a little bit better. But generally I'm looking for the same thing that everyone else is what's the saying that the burnhams have? You want to see walmart and smell mcdonald's? So I'm looking for high density, lower saturation and then a property with strong drive-by visibility. Drive-by visibility is less important now than it was pre-covid, with a channel shift in customer acquisition moving more towards call center and online conversion, but you still want a strong drive-by presence in the market.
Speaker 1:So if you can get drive-by, that's going to be ideal, of course. But if you're not on the main road, for example, if you're off, maybe a left-hand turn, you go down a little bit, it's in the back. I can think of one like that right now over in Mooresville. It's literally off the beaten path, down like a longer cul-de-sac, and at the end of the cul-de-sac is an extra space storage. So to me that wouldn't be ideal. So you're saying that we can overcome some of that with online marketing et cetera.
Speaker 2:Yeah, I'd rather have a poor location in a good market than a good location in a bad market. And so, if it's an oversaturated market, if I'm main and main, there's only so many customers that you can acquire in any given market and so there are only so many people on a Tuesday in Mooresville that need a self-storage unit. So we cannot create demand for self-storage. We can only try to get them to select our company. So we're all fighting for the same, effectively, pool of customers. But if you look at channel shift for customer behavior pre and post-COVID pre-COVID generally and this is not a rule across every company, but generally speaking about 50% of your customers would come from walk-ins. Now that may not be how they found you. That may not be Wait wait, wait Back up.
Speaker 1:So you're saying pre-COVID, pre-covid, okay, walk-ins 50%, roughly, okay, yeah.
Speaker 2:And so you were looking at your channels for how your customers find you was roughly 50% for walk-in, 25% would convert through your call center or find you through your call center, and 25% and this is just where they converted, right, yeah, and 25% would convert on your website. Those numbers have shifted post-COVID as operators have invested in tools for their customers to do business through new channels and have become more comfortable with fully contactless rentals. And now again, not a hard and a fast rule, but most large operators are seeing about half of their customers converting on the web, 25% converting through the call center and only about 25% converting through walk-in. And that rule holds true for our properties as well. If you look at your typical 500-unit property, you're going to have a 6% 7% churn, so you'll be renting 30 to 35 units a month and we're seeing for those properties.
Speaker 2:If you look at the origination of the rental where that customer converted through, it's not uncommon to see again five walk-in rentals in a month. So it's not that position isn't important because at the margins, if you can get three more rentals at your typical property, that's a 10% increase in your rental volume or your rental velocity. So it still matters having a good location. It's just that it's not as important because most of your customers are converting or selecting a conversion channel before they've ever gone to the property. So it doesn't mean curb appeal isn't important. It doesn't mean main and main location isn't important, but it has shifted the importance yeah, you need to have.
Speaker 1:you got to check all the boxes right and so, like you said earlier on, you'd rather be in a good market, so that makes sense. Then you just brought up an interesting point about the website conversions. So what do operators? If you can give some advice to operators on what they need to have on their website so that they convert more visitors?
Speaker 2:Sure. So we look at it as a percentage of visitors to our website that are converting, and so we look at, if you have 100 people visit your website, what percentage turn into reservations and what percent turn into rentals. I don't know that there's one silver bullet for how your website should perform, but I would say at a base level you need to understand what percentage of your customers are going through each of those channels, because when you make a change to your website and you're trying to improve your customer acquisition strategy, if you don't have a baseline for how you can measure that performance, you don't know if that change is successful or not. And I'll give you an example.
Speaker 2:I've seen a lot of operators right now where you've got softening top line demand using a six month half off promotion, and I've seen that across a number of different companies. That sounds like a great strategy, right. I totally understand what that operator is trying to do. I understand what they're trying to solve for, which is more transparency for customers instead of an aggressive ECRI on month four, five or six. They're trying to be more transparent and that's great. That's a fantastic goal. The problem is that's not how customers shop and so there's not a strong causal relationship between that promotion and a higher conversion rate than a first month free promotion, which is why you'll almost never see public storage or extra space run a six month half off promotion.
Speaker 1:I understand, because the customer is not thinking. Maybe they don't even need it for six months or whatever. Is that the idea, like we're not thinking out that long term?
Speaker 2:Yeah, your typical customer that thinks they're going to need the unit for fewer than six months ends up staying a year. Your customer that thinks they're going to need the unit for a year on average stays closer to two. So when you can't measure your website's performance or you don't understand the link between the change you've made on your website or in your pricing or your promotion strategy and the change in customer behavior or conversion actions, you're just guessing. So you're making a decision in a vacuum. So I wouldn't say that there's necessarily one again provider you have to use for your website. There's one agency you have to use. But you should know again, you should be making data-driven or data-informed decisions around conversion pathways for your customers.
Speaker 2:So back to the six-month half-off example. Effectively, what you've given your customers is three months free, but you don't know if you do the math. So if you add six months half-off and you look at your median or your mean length of stay for your customers, most operators are going to solve for around a 13-month average length of stay plus or minus. Right. So you're still giving that customer three months free, but you don't know how is that influencing your conversion actions on your website, either reservations, rentals or your reservation conversion percentage to a rental by offering your six months half off. So it's this lofty goal, but again you're just making that decision without understanding the influence on your customers. So that is the value and the benefit for me of having worked at an extra space for so many years is I saw how extra space and the marketing team iterate on and improve their website and even use heat maps to track where the customer is dragging the mouse.
Speaker 2:And it's funny because when you've worked in that environment for so long, you can see I know the people that work there and I still have many good friends that work there and I know how they look at their business and they'll say, okay, we're going to take a thousand properties and we're going to change the color of the button that says reserve and we're going to change, we're going to test. Okay, we're going to keep a control group where that button is a dark bluish purple. We're going to take a group where we're going to make it orange, and then we're going to take a group and we're going to make it red and they'll, down to a scientific level, be able to say, okay, when you change that button from purple to orange, you get, you know, 0.2% more conversion actions on your website, and so that's again. I don't know that there's one provider or one agency you have to use, but you should be making decisions around your website that are informed by customer behavior. That should be measurable.
Speaker 1:Okay. So then help us. I have so many questions. Help us open the veil for us for a quick second for the reads. I know that maybe you don't want to give away all the secret sauce of what's going on, but the other operators out there, when you have it sounds like the website, if it's 80-20 rule, the website is where you should be focused on, at least at this point. To convert customers. You should be looking at your conversion funnel, how many visitors you get and what percentage of those convert. You should be looking at possibly heat maps and changing your website around. What else do they do to try and get those customers to click that reserve or rent button?
Speaker 2:Yeah, so everything is measured and it is down to a scientific level. And that's what's funny.
Speaker 2:When I see someone look at a REIT and I won't give away the secrets you'd see like a red dot show up on my forehead if I started telling you the full playbook, but effectively everything is measurable and everything is data-driven, which is why I think it's so funny when you see someone say and I hear this all the time, I'm not sure if you hear this in the industry or at trade shows well, the REITs like to have occupancy over 90%, because Wall Street loves high occupancy.
Speaker 1:Yes, I've heard that numerous times.
Speaker 2:That is pardon my bluntness total garbage. The extra space and public storage and CubeSmart only care about delivering the highest profit margins for their properties and driving their NOI. If they thought that they could deliver the highest NOI growth year over year at 80% occupancy, please believe me. Trust me that they would have their properties at 80% next week. This is a strongly data-driven, data-informed decision-making process where you have employees, you have data scientists that are measuring down to the unit level at different control properties, trying to understand how to make it a conversion machine. And that is when you hear someone say the gap between the haves and have-nots or the technology advantage of a large operator to a midsize operator and then a midsize operator to a small operator. That's the difference in the experience is how you're using that customer data. You know there's this availability bias or this availability heuristic, where you have an operator saying well, that's not true, they want to be above 90% because that's what Wall.
Speaker 2:Street likes because my property has only ever been 80% full, and to get to 90% I would have to price below market. So I'm the price leader in the market. I can't tell you how many times I've heard that I want to be the price leader in the market. Well, if Extra Space wanted to be the price leader in the market again, if they knew that that drove NOI to their properties, they would do it tomorrow and they would flip a switch. But every decision that you see one of the large operators making has been iterated upon and tested and retested in a tertiary market and then a secondary market and a core market across tens of thousands of customers, before that decision is ever implemented. So that's the gap that I see in technology between the haves and the have-nots in the industry today.
Speaker 1:How do you, when you're looking at a new location and you what is the process that goes into running the comp analysis and understanding where can we position this property? How do we compete? Because if you're looking at a market, you guys compete with the REITs in many markets, many locations across your portfolio. When you look at an extra space or public storage or whomever, and you look at this new deal you guys are going to acquire or develop, how do you determine where to price things and how you can compete effectively with those guys?
Speaker 2:Yeah, and I see people today trying to underwrite at web rates and it's not a surprise that nothing pencils.
Speaker 1:Yeah, help us understand this.
Speaker 2:Yeah, and some of this is my own personal experience, what I've seen. But generally speaking, when most companies are looking at web rates, they're looking at the web rate as a either fixed or variable percentage of the street rate, because that has been their availability bias for how they price their properties. And they're looking at an extra space and saying, okay, if the market rate is $100, the street rate walk-in rate, whatever you call it and the web rate is $50, well, there's no way that they're full on that unit type and that's just not how a large company is looking at it or certainly how an extra space is looking at it or how we're looking at it. From my experience, that street rate or the offering rate tends to have a closer relationship to the in-place rates at the property Plus or minus 10% you're.
Speaker 2:Usually, if you're looking at an extra space property and the street rate is $100, the average in-place rate's probably very close to $90. The web rate is more of a forecast for the asking rents in the market for new customers to try to acquire those customers. So it's not necessarily that it is a flat 15%. The web rate that you're seeing is more of a demand forecast for how can we acquire the most customers to stabilize and stay above that 90% occupancy threshold. That 90% occupancy threshold. Typically, if you aggregate the web rates across a property, or if you at least annualize them out over the course of a year, that web rate gap will tend to be around 30% of your street rate. But your stabilized rates, your in-place rates, do tend to be plus or minus, again 10% closer to the street rate.
Speaker 1:So when you guys are looking at a property, these are the things that you were thinking through. If you're looking at how to compete, how to price, et cetera, You're looking at their street rates, their web rates and making your analysis with some margin of error maybe.
Speaker 2:Yeah, exactly, and instead of looking at an internet rate GPR or a street rate or an asking rate GPR we're looking more at an achieved rate and again, assuming that that achieved rate is closer to 10%. Wow, that's amazing, excuse me, 85% to 90% of the street.
Speaker 1:Okay, got it. Okay, that's amazing, man. Okay, I want to ask you real quick, as we're talking about markets here, real quick tertiary markets so we know primary, great, okay, there's pros and cons there. Secondary same thing. Tertiary markets I know a lot of smaller operators want to buy in tertiary markets because there aren't REITs around. What are your on that? Would GoStore at every maybe explore some of those markets or what works for you guys or what doesn't?
Speaker 2:Yeah, sure, those have been some of our strongest markets, candidly. And we have a property in Crossville, tennessee, that is. You know, you would never look at Crossville on a map Exactly.
Speaker 2:So you would never think Crossville, tennessee, okay, that's where we have to have a storage facility. And, to be clear, I mean we have properties in New York City, we have property on Nantucket and then we also have Crossville, and Crossville is one of our best markets Really Because, similarly, there's not a lot of competition, there's not a lot of midsize large operators or represents in the market, so we can come in and again, there are only so many customers shopping for storage in any given market. It is a high intent product and your customers are likely going to be making an immediate purchasing decision for your product. Which is why I think it's so funny when someone goes out and advertises at the Little League baseball game and buys a billboard or puts an ad in the high school yearbook yeah, I've seen those. Or what are the other examples? Hands out business cards yeah, door to door.
Speaker 2:You're not convincing anyone to get a storage unit. You might remind them that they're moving in a few months and need to go look for a storage unit, but then when they do go look for a storage unit, they're just going to go to Google. So the advantage that the large operators have holds true in a secondary or a tertiary market. There's just just less competition. So you're not fighting as much for organic or local rank, you're not having to spend as much for paid rank. But I promise you, the people of Crossville, tennessee, still have iPhones they're not lost in time, you know they have iPhones.
Speaker 1:The customer behavior they is still shopping the same way, right, okay, so you make an interesting point. So that direct marketing that we do that I've seen before as well. It isn't going to push somebody to buy your product. It's not going to be advertising iPhones or whatever, but when somebody needs it, they'll look for it. When they look for it, they will use technology to do so their phone, and they will Google self-storage near me or whatever it is, and so you want to spend your marketing dollars there, and it sounds like what you're saying is in the tertiary markets. Those dollars go a lot further in getting you to rank and getting you noticed when they go online.
Speaker 2:Right, because when you're looking at your advertising dollars, you're bidding for the same pool of customers, right? So again, there are only so many customers in Crossville, tennessee, that need a 10 by 10. I cannot convince you to get a 10 by 10. Even if I make it free, you're still not going to need a store. You're either moving or you're not right, or you're downsizing or you're not. And so when you're solving for your paid dollars, you're looking at your impression share, your conversion rate, your top of page rate and your absolute top of page rate. And it is an auction-based market for PPC or for Google Ads. And if you're competing against 10 people, we all need to make a conscious decision how much am I willing to bid for that customer? And usually that's assigned to the lifetime value or the ROI that you have on the customer. So if you look at a market where we have a number of properties, if you look at LA County, right where we might be, it might not be a three mile radius, it might be a mile and a half radius, but we still have 10 REIT competitors in that mile and a half. There's a higher rent per foot, so we're willing to bid more for those customers, but there's also a diminishing return right where you don't just want to throw dollars that you're advertising to try to buy customers at an ROI. That doesn't make sense, but you are certainly. You're running a race against more competitors and you don't have that same problem in a secondary or tertiary market.
Speaker 2:However, I will say I don't know that the industry today realizes how aggressively self-storage has consolidated in the last five to seven years. I think there is still a perception that this is a more fragmented industry than it is. So, if you'll humor me, I looked at the top operators list from 2022 to 2024. Generally a time period where you would say you know soft market, you're not seeing high transaction volume, you're not seeing a lot of properties trading. That being said, even just in the last two years, the top 10 operators in our industry have grown their market or, excuse me, grown their store count by 18%. So you're seeing aggressive consolidation and I've been doing this for a while.
Speaker 2:I started shortly after the financial crisis and self-storage, so I've seen a couple of different cycles. Now the financial crisis and self-storage, so I've seen a couple of different cycles now. And if you look from 2017 to today and you ask the average person. How has the market share changed for the REIT operators they might throw has grown from 19.9% to 36.9%. So it's not that you can't do well in a secondary or tertiary market, it's that you are more likely to be competing against a REIT or a large operator now as they've entered some of these markets that they've historically would have avoided. And it does mean that if you're trying to find that diamond in the rough again the Crossville, tennessee those are fewer and far between because you are more likely to be competing against an institutional operator, and then the advantage or the technology of those institutional operators, post-covid, is greater than it ever has been.
Speaker 2:So we're mirroring more closely the hotel industry, where right now over 70% of the hotels in the United States are owned or managed by one of the major flagship brands. It's why when you and I travel for self-storage, we know anywhere in the US, within a couple of miles, you're going to be able to find a Hilton Garden.
Speaker 1:Inn.
Speaker 2:That number is even more skewed towards major operators. When you look at new developments, post-covid new deliveries in the hotel industry, over 90% of them, or right around 90% of them, tends to be owned or managed by one of the major franchises or flagships. You still have your roadside motels that might be your Bates.
Speaker 1:Motel right.
Speaker 2:But when we're looking at a deal, we're not staying with Norman Bates, you're staying at a Courtyard Marriott, and storage has mirrored that pattern and I think that consolidation is happening faster than people realize in the industry today. So again, it's not to say you can't find that diamond in the rough. So again it's not to say you can't find that diamond in the rough. But there are fewer and far between.
Speaker 1:That's interesting. So what are the implications then for maybe somebody listening to this episode or watching? They're trying to buy a deal that's called it under 40,000 square feet, so not quite REIT size maybe, but something in that space. What would your advice be there? Because it sounds like, oh shoot, maybe there's no opportunities now, or maybe they're much fewer, like you were saying. What can they do if they want to get into the business?
Speaker 2:Yeah, you need to be very intentional about the management company that you select, and I was with Extra Space for many years. I still have a soft spot for Extra Space. It's funny actually, when you look at our company, we have so many former Extra Space. It's funny actually when you look at our company, we have so many former Extra Space employees here in our senior leadership roles that it looks like an Extra Space company meeting. You still see Extra Space hats and backpacks, which should tell you that we all still feel very strong about.
Speaker 1:Extra Space.
Speaker 2:We still love the company, but, you know, we decided it was better to be a pirate than join the Navy. So we've got this offshoot of former Extra Space employees that really are the core of our management platform and our excuse me, our operations platform. But you need to be very intentional about the management company that you select because, again, the gap between the haves and the have nots and the ability to execute on your business plan is so critical. The post-COVID years were easy for our business, and I would even extrapolate that out and say our business has been easy since the financial crisis and you could do very little and you could perform. You could very easily grow your NOI 6, 7% a year. But post COVID, in 2021, 2022, there were a lot of people taking victory laps and giving themselves pats on the back because they were getting 15% NOI growth year over year and saying you know, it's my business plan. Well, no, it was the market. If rates are up 30% to two years prior and every storage facility in your trade area is full, you have to be a pretty bad operator to not get 15% NOI growth, unless you're quite literally just not raising your rates or ever doing rent increases. And so what you see was a lot of companies thatwhat's the expression, you don't know who's skinny dipping until the tide goes out and they thought they were doing really, really well. And now those are the operators that are feeling an outsized impact in when there are fewer customers moving Slower top line demand, so that the to answer your question, you need to be very intentional about how you select a management company. I do think that the business has changed. Storage is not just storage anymore, like it was when I started in our industry, where you could pull the weeds in front of your property, you could have a great training plan for your manager and your competitive differentiation was the fact that you had a mystery shop program or maybe you had the best bonus program for your managers. Well, now it doesn't really well. It still matters, but it doesn't matter how great your manager is if 75% of your customers already make their purchasing decision before they ever see your property. So right now, it doesn't matter how good your property looks, it matters how well your management company makes that property look online. So it is all about your customer acquisition strategy for your third-party manager. I'll give you an example, because we have it as a case study.
Speaker 2:Gostoreit onboarded the Snapbox portfolio and we integrated them into our management platform early fall. Snapbox was one of the top private operators in our industry. They were a fantastic company. Very fortunate to get to work with their founders, jake and Matt. We brought on their CFO, scott, as well. Incredibly smart, incredibly talented people. They had a 50-plus asset portfolio in markets you want to be in in the Sunbelt right. These are class A assets in Miami, fort Lauderdale great, great properties, really, really clean assets. They had decades of experience in their management ranks. They had their own internal call center. They had a full-time revenue manager. They had a completely bespoke, custom-built website.
Speaker 2:But the technology arms race and the acceleration of technology in our industry meant that even as a premier private platform, one of the top 100 operators in our industry, it was still difficult for them to compete. And when you onboard Snapbox to go store it, the results have exceeded even our highest expectation for how those assets would perform. But I use that to demonstrate the example of the gap between the top 10 to 15 operators and then 15 to 100 on the top operators list, and that gap is more pronounced with the technology that has enabled a stronger operating platform. So for Snapbox specifically, if you look at the first 90 days after they were onboarded to our platform, the same store pool for Snapbox from 2023 to 2024, exact same properties. In that 90 day window, rentals increased over 41% oh wow. And if you look at square foot occupancy for those assets in that same 90-day period in 2023, occupancy dropped off by 1.6%, while they were managed by GoStore, occupancy increased by 2.1%. That's huge. So you're solving for a 41% increase in rental velocity and you live or die based on whether you're renting or not a 3.7% delta year over year.
Speaker 2:Wrap it all up is it was really easy the last few years, with how good our industry has been, to say this is a low-sophistication business, location is all that matters, I have a lower cost of capital, or I have a fantastic location, or I have a better investment thesis. I found this property and I'll be able to go to the trade show. I'll go to Vegas and I'll go shopping and I'll say, okay, I'm going to use that company for my website, that company for my call center, that company for revenue management and I'm going to Frankenstein this operation together because storage is easy and I'll be able to put together a good product. Well, those companies are now seeing okay, you're not running your management company profitably.
Speaker 2:At best you're running at break-even because of all of the investments that you need to make in these niche technologies and products that enable a more sophisticated operation. So you're spending a lot more cash on your management company than you're expecting because you can't just drop in a district manager now and call it a day and run a 17-store management platform. You don't have the purchasing power to go buy those tools. And even if you are purchasing those tools, you've got the same playbook that every other operator has. And if I go into a market and there are three midsize operators in that market and I see they all use the same website company, they all use the same call center and they all use the same revenue management product, but they're expecting to outperform the market. That's crazy.
Speaker 1:Yeah, it's not going to happen?
Speaker 2:It's not going to happen. So if the same website, if your website looks the same as your competitors, you've got the same person answering the phones for you or for your competitor and you've got the same revenue management software, you're just not going to get a different result. So my challenge to anyone that is looking to get into the industry or that is already in the industry is you're expecting this aggressive consolidation in our industry. You're expecting things to continue to get more difficult to operate. You know you're thinking maybe that's a few years out. What I'm saying is that that has already happened and that environment is already here today.
Speaker 2:It was easier to mask that, though, with the high tide that raised the level of all operators over the last few years, and now the companies that were again giving themselves pats on the back saying you know, hey, we were doing a really good job, a really good job are feeling the effects of a down market more pronounced than the large companies, because it's better to be in a cruise ship than a rowboat. When you're in a storm at sea, you feel the waves a lot less when you're in a cruise ship. So that, again, is my recommendation is be very intentional about the company that you choose. Be very careful about the company that you partner with, and this is a lot more difficult than it looks like. To create a successful management platform in 2024 than it was in 2019 or 2010.
Speaker 1:Oh my gosh man, that is incredible. You mentioned the technology with the tech stack. I mean, what would you recommend? I know that we just said, hey, if you go to the trade shows, you're out there shopping and, like you said, I'm going to pick this company for this, this company for that. Then what are you looking for in a tech stack? What is the 80-20? So maybe I have to pick a few things off the shelf, but what's the most important thing that I should pay attention to in that stack?
Speaker 2:Yeah, I would just say that the perception has been that you can find one of the two to three companies that service each vertical in that tech stack and you can go pick them off the market and get the same performance as a REIT or as a public company. And my experience has just shown that that's not true and the larger companies that have internalized these tools, the vertically integrated operators that have found a way to build these that service just their platforms, get a better result than the companies that are using an off-the-shelf tool. I'll give you an example for the Snapbox properties. Again, snapbox was using an advertising agency that managed their paid search. This is a company. That's all they do, right? They're a very successful agency. Managing paid search. Storage isn't all they do. They do it for other industries too, and it's difficult as a 50-store operator to find ait's difficult to go and hire a paid search manager to manage your Google Ads account or whatever other platform you want to advertise on. When you go to a large management company, you have a full-time employee. That's all they do. They're dedicated to our brand and you get outsized results. So that's the difficulty is, there are many good options. At a trade show you can go interview them, but it's difficult to replicate that performance that you get with an institutional management platform where you do have a full-time, dedicated employee and that's all they do for your business.
Speaker 2:I at another company used a large advertising agency that is very well respected in our industry and, frankly, they do a great job and they oversaw our paid search for us. We paid a very reasonable amount and numbers were good right, because everyone was doing well. But it drove me crazy when, year after year or call after call, they were telling us how great their performance was in Ann Arbor, michigan, and they were saying, look, how well our ads have done for us in Ann Arbor and we have to explain well, no, the University of Michigan just got out. This isn't your advertising effort, but that's the level of care that you get from an agency where they have to service a number of clients and they have to do it cost effective, so they have a margin. But when you look at Snapbox, when we moved Snapbox away from a digital agency and to our again internal, in-house product, the results are dramatic for the assets and they speak for themselves the paid search results for Snapbox, the cost per rental for a customer acquired through Google Ads. So you can attribute that customer to Google Ads. Right, you can track their behavior. If you can see that they clicked on your ad, they went to your website. They clicked rent. The cost per rental click decreased by almost 50% after we move that Internally, and the total number of rental clicks increased by over 30%, and again they were using a leading digital agency and so so my suggestion is not again that you try to do it all yourself and you try to bring in these 10 different companies in each of the different verticals to try to manage this for you.
Speaker 2:What I'm suggesting is that the product, the quality of the product and the quality of the service that you get from a large institutional enterprise organization is a better product than trying to just aggregate all of these technologies to yourself where you don't have the same purchasing power of a large company. So even if you do go out and find the same provider that a larger company may be using, you might be paying twice what that company is paying for it, because you don't have the same economies of scale.
Speaker 1:Yeah, so it sounds like you should raise capital and hire good internal people if possible. Yeah, raise capital and like you should raise, capital and hire good internal people if possible.
Speaker 2:Yeah, raise capital and go, hire a good management company. And it's tough to run a profitable management company in self-storage because, again, all of these bespoke products that you need to either create or you need to go overpay to try to find something on the market to bring it in-house. The sophistication and the technology needed to run a successful platform today is more expensive. So you have more overhead for your management company and you can't do it as efficiently as a company that has 10 people managing it and you certainly don't have overlap. So if you do go and let's say you do decide to internalize it and hire one person to manage your paid search, if that person quits you're going back to your ad agency, hat in hand, saying, hey, sorry, my bad, Exactly.
Speaker 2:So what I would say is look, you want to focus on your investments, you want to focus on building a successful platform? Great, that's what you love doing. But find somebody like me that loves figuring out what to do when I get a phone call at two in the morning that somebody you know, a drunk driver, drove off the road and drove through the gate for a very reasonable fee, and what I'm proposing as well is that you know the companies the large management companies are.
Speaker 2:the fees are so reasonable now because there are more entrants in the space that your overhead to hire a management company is likely lower than your cost to manage your own assets because of how many different roles that you would need to internalize now. And not only is it a lower cost to get that, but you're also getting a better performance because you're getting an in-house call center. You're getting someone that only manages it for that business, versus again doing it yourself. And you call my property and you call the property across the street and it's the same person that picks up the phone because we use the same answering service. And I'm not trying to discredit those services. I think the people that work there are fantastic. Just to say that it's difficult, even if you pick the right provider, to get the same level of performance.
Speaker 1:Well, yeah, you're playing a different game. So you mentioned the top 15 owners out there versus the rest, right, it's a different game. It's the big leagues versus minor leagues and everybody else, and so you guys are playing a different game. So if we're going to compete in the same markets as you guys or the Reeds or whomever, we have to play the same game. And so if we can't beat them, join them right. So hire a management company.
Speaker 1:I've made those mistakes in the past as well. I've learned those lessons. It helps to have a top-notch management company managing your stuff. Plus, it frees you up to be able to go do other things that you wanna go do acquire more facilities, develop whatever it might be. That makes a ton of sense. I know we're running out of time here. I wanna ask I didn't get to hardly any of my questions, but it's been very good. Actually, we did get a couple on LinkedIn. But before we do so, let's pretend you have a P&L, right, it's coming on a deal and you're looking at it top to bottom. What are the things? Again, 80-20 rule what are the most important things on that P&L that you're looking for to improve the operations of that property?
Speaker 2:Yeah, top line, I'm looking at the unit mix and I'm looking at the amenity gaps between the units. I'm trying to see do the gaps make sense? We're onboarding in the near future a couple of assets from a company that has its own management platform. They're bringing some of their underperforming assets to us because they're betting and I think they're making a good bet that the performance will improve and at the basic level, they are great developers. Right, they have class A properties. These are 70, 80, 90,000 square foot four-story properties, all climate, beautiful assets in really, really strong markets. But you look at the pricing and the pricing for the second floor is the same as the first floor. Really, yes, and they build great properties and we're going to fill them up for them and we're going to fill them up fast, but at a basic level.
Speaker 2:For top line, I'm looking at the unit mix. I'm trying to see how that comps to market and again, I think there's a fallacy that you want to be top in the market and extra space has shown that that's not true. It's better to position yourself toward the midpoint of the market, acquire customers and then escalate those rates. But I'm looking. How are they positioned to market? What are the amenity gaps between the units? Are they charging enough for climate? Or do we even like the mix? Do we have to convert out of units? Or is it a banker's mix where the property was built with 300, five by fives on a 500 unit property where there's no price point where I'll ever be able to fill that property up if it's in the wrong market?
Speaker 2:So I'm looking and saying, okay, if we're an airplane, right, do we have enough first class seats based on the route that we're flying? Or if we're a hotel, do we have the right rooms? Because it's not impossible but it's difficult to change your mix and storage. And then on the expense side, generally the levers that are easiest to pull to make an immediate influence are labor or payroll and then your marketing spend for a property. Those are kind of the immediate things that I can change overnight. And if our cost to manage an asset is $50,000 and we see that labor for the property the run rate has been closer to $100,000 for an institutional asset, that's quick to just. I can flip a switch and change it tomorrow. Some further down the P&L it's a little bit harder to say. You know, there's not always a lot of juice to squeeze out of, like landscaping or snow removal, but generally, from an operating standpoint, those are my easiest controllables. Okay.
Speaker 1:Got it On the marketing side. Again back to the marketing thing. What would you look like? How would you make some adjustments there? I know this is hypothetical, but up down, how do you make the decision on the adjustments? I can't talk here, but how do you determine what needs to happen?
Speaker 2:Yeah. So generally, and we have enough size and scale, we're in 23 states that we have usually an equivalent sister property where we can look at our run rate on marketing and we can say, okay, based on saturation in the market, based on available search volume, we can get pretty close to the pin on what we're going to spend. If we overspend, it's usually not because we misread the saturation or the competition in the market or because there was a new entrant into the market. It's usually because we were solving for a healthy cost per acquisition or a good ROI. We felt like there was more meat on the bone. So if we do overshoot, it's because we're usually leasing a property up at a faster velocity than we anticipated and I would attribute that to both paid search as well as to spare foot or an aggregator.
Speaker 1:Got it Okay real quick. Technology locks, bluetooth locks and all that. What's your take on those different types of locking mechanisms for management?
Speaker 2:Yeah, they're great from an operating standpoint. They almost never pencil. And this is the value again of looking at a platform like Extra Space, where you know Extra Space is funny because they would say, okay, we need to get a meaningful sample size to find out how customers whether customers, like or dislike smart locks or whether that will influence a purchasing decision. You know, if you don't do it, put it in 10,000 units. That's not a meaningful sample size For most people, that's their entire portfolio. And similarly, when Extra Space says we're going to test kiosks, you know it's funny. That was one of the committees I was on was the product committee, and we would say, well, we only have kiosks and 125 assets, so that's not really a meaningful sample size.
Speaker 1:And it's like, oh boy, that would be like the 15th largest operator in the country, not to mention the cost of having that many kiosks.
Speaker 2:Sure, yeah, you can easily just go spend a million dollars on kiosks. So what we found at Extra Space is that smart locks generally do not influence length of stay or a customer making a purchasing decision. It's not to say that they are not easier to manage as an operator because there's less of a lift to turn a unit around when someone vacates, but generally they don't influence a stronger conversion rate on your website. Customers are not willing to pay more because of them and they typically don't stay longer because of them. They're nice to have if you're building a new property, but it's very difficult to go justify the cost to retrofit an existing facility if you don't think you can charge more for that.
Speaker 2:I think where the products that are interesting that are out there right now are the locks that are on the door instead of in the door. So da Vinci lock, I think, is a great workaround. And then Rob cap over at kiss who's actually he's in in outside of Charlotte as well he's created an NFC lock. That I think is it's really interesting as well. So there are there are workarounds to that if you want that solution for your customers. But usually you know, even if you do think you can charge a premium for it, whether that's on the rent per foot or in a smart lock fee. You're usually not going to be able to make that pencil within any reasonable timeline. To go retrofit an existing asset Perfect.
Speaker 1:Okay, andrew Jones over at Just Storage. He asked you over at Just Storage. She asked you how do you feel about mobile units like the Janus MASH units for increasing revenue or just having a new inventory, adding new inventory to locations?
Speaker 2:Yeah, love them. You know they're an easy value add for the property and an easy way to expand it. Generally, though, the cost to you just have to decide what you're solving for with mobile units. To decide what you're solving for with mobile units, and if your cost per foot to put in a mobile unit is high 40s, mid 50s and that's a range based on which product you're using it may not be that much more to just go add a drive-up building.
Speaker 2:So if it's, $10 more a foot to go build drive-up. That may make more sense. So I certainly wouldn't recommend that you go add 30,000 square feet of pods to a property or 15,000 square feet of pods. But if you have dead space at an asset and it's not impacting a fire lane, if it is a high demand unit type, yeah, absolutely they make sense. You've got different solutions for what you're trying to do with those. So you know there are some that are a little, are a little more of a door bolted onto a shipping container and then mass is the Cadillac of it. And the advantage in mass through Janus is it is a more customizable unit mix but you do pay for it. So if you need 10x30s you can get them. If you need 5x5s you can get them, but it's a higher rent per foot. You're just looking at, really, ultimately, what's the payback timeline for these pods and what's your hold period for the asset? Absolutely, if it's a sub-three-year payback for pods, it usually makes sense to do.
Speaker 1:Awesome. So Bo likes the MASH units. Janice, if you guys want to sponsor the podcast, let me know. Happy to have you guys part of it. Tommy over at StoragePlock Everybody knows me know. Happy to have you guys part of it. Tommy over at Storage Plug everybody knows, tommy. How do you integrate two fully functioning brands into one cohesive brand? So he's obviously referring to the recent merger between you guys and Snapbox. How do you guys bring that together?
Speaker 2:Oh, call, Tommy, no, we use, so we had to create. We're about to launch a bespoke website or a fully custom website that integrates a multi-brand experience. We don't want it to appear to a customer when they click on a paid ad or an organic link for a Snapbox property that has blue doors and signage and then they're redirected to a red website where the store logo is staring you in the face. It's a strange experience for the customer. We don't want that to influence our conversion rates. So we're creating and about to launch more of a white label brand experience so we can integrate multiple DBAs. And that's valuable for us as well, because we do third-party management. So if we're taking on an existing property, we're not forcing that owner to switch over to our flag or to our signage. But it did necessitate a refresh of our customer experience on the website so that we could again display more of a white label brand experience.
Speaker 1:His follow-up is what's the cost of rebranding those stores, or what does that look like as far as operationally it wasn't cheap. No, how do you guys integrate that into the whole process?
Speaker 2:It's cheaper to do digitally than it is to spend. I think I saw a number that was many tens of millions of dollars that Extra Space is spending right now re-signing all of the life storage properties. It was certainly a lot cheaper to do on a website than it was with physical signage and a property yeah, no, kidding Right, yeah, and I like our logo.
Speaker 2:I think it looks good, oh it's great, but I certainly don't know that an owner-operator needs to spend $30,000 to $50,000 re-signing a property. It was much easier to customize a website.
Speaker 1:It gets up there, so yeah All right, let's get to the final four questions brought to you by our sponsors. Check out the description below those folks. If you could change one thing, Bo, about the industry, what would it be?
Speaker 2:Oh boy, what would I change about the industry? I don't know that I would change just about the industry, but I think it's something we have to answer as an industry is we are creating a customer experience that will long-term cause reputational damage for self-storage in the aggressive ECRIs. Right now, it is mutually assured destruction. The only winning move would have been for us to not get into this price war, but we're in it now and we will see more regulation around ECRIs. It's not an if, it's a when, and I don't know where the first domino to drop would be, although probably California. But the question that we need to answer the gorilla in the room right now is we intentionally punish longevity for our customers and we have it down to a science on how inconvenient you can make it to use your product before someone moves out. And what is the absolute worst experience, cheapest experience you can make for a customer before they select to not use it? That's interesting.
Speaker 1:I don't know why I never thought about it that way.
Speaker 2:So that's the more existential challenge facing our industry right now is how do you make that a more transparent experience for your customers? And a question that I don't know that a lot of large operators can answer right now is yes, you know that you may not have a material difference in length of stay for a customer after a large ECRI a 30 to 50% ECRI but lifetime value for that customer is that customer less likely to use your product again in the future? That's going to take more time to answer, but what I would change about the industry I don't have an easy answer for it today, but we will need to solve for a more educated customer that understands ECRIs and ultimately we'll need to figure out how to solve for a better tenant experience.
Speaker 1:We should pull together an ECRI council of the top 15 and hopefully make some changes there. What's been your most rewarding career moment?
Speaker 2:For me, it's the people that I've grown up with in the industry. I have people that have followed me and I'm very fortunate that they continue to follow me across multiple companies. So I've got employees that I've worked with at three different operators now and over many years, and that's very gratifying. I was trying to find other examples where you have people that started at the mothership the extra space and then went off and did their own thing, and so they call it. I found one. It's called the PayPal Mafia.
Speaker 2:And the people that were the early days of PayPal and then they went on and founded or ran Tesla, linkedin, youtube and Yelp and I think I've got my own kind of little PayPal mafia now within storage.
Speaker 2:And so you know we've got Kristen, who runs operations support for us. We've worked together at three different companies now. Adam, who runs our field operations, at two companies. Rob, who's on our facilities team at three companies. Melissa, who runs our call center at three companies. And I trained Melissa at Extra Space. What 13 years ago? Wow, that's amazing. And now Melissa and I have worked together across three different companies and three different time zones across the US, and so for me it's gratifying to be able to. I was able to advance my career in the industry. It's gratifying to see them grow up in the storage industry, was able to advance my career in the industry. It's gratifying to see them grow up in the storage industry and someday, when I work for them, hopefully they remember that I treat them all the times I bought lunch.
Speaker 1:That's amazing man Talk to us real quick about a career challenge. What was a challenging point? What'd you learn through that experience?
Speaker 2:point. What'd you learn through that experience? Yeah, for me, most recently, what comes to mind is Asheville. We are the second largest operator in Asheville and with the hurricane that came through, fortunately only one of our properties had significant damage. But it is always challenging and it is a reminder to me how much our asset means to our customers. And it's funny because you ask the customer on the front end what their declared value for their items is, while you're offering a tenant protection plan and it's crap, and they don't care if it all burned down or was stolen tomorrow and then when a loss happens, it's not the same story.
Speaker 2:You realize it's photo albums and personal effects and memories and Christmas ornaments that you can't get back, and so it's photo albums and personal effects and memories and Christmas ornaments that you can't get back. And so it's challenging when you see a loss like that, but it is always a reminder to me of the meaningful association that people have with their belongings and by association, self-storage.
Speaker 1:Absolutely 100%, bo. Last question how can listeners get in touch with you if they want to learn more about the third-party management or just reach out with questions?
Speaker 2:Bo at GoStoreIt. B-e-a-u at GoStoreItcom. Don't find me on Facebook. I never use it. There you go.
Speaker 1:Bo, thank you so much for being on the show. Man, I appreciate it. Pleasure, all right, bye, bye.