Blackstone Just Quit Self-Storage. Nobody in This Room Is Panicking.

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Blackstone Just Quit Self-Storage. Nobody in This Room Is Panicking. Guests: Noah Starr — CEO, TractIQ; Armand Aghadjanians — Director of Acquisitions, Store Here Self Storage / RHW Capital; Thaddeus Campbell — Director of Business Development, S3 Partners Host: Chris Berg — Abernathey Development Recorded: September 17, 2026 Video: https://www.youtube.com/watch?v=jK6AbiuQuc4 Key topics: SSA in Las Vegas, and why brokers are busy while investors still can't find deals that pencil; early-2020s loans hitting refinancing and forcing owners to sell; the shift from call-for-offers dates to rolling offers; "sector tourism" and the gap between core-plus capital, value-add buyers and developers; Homegrown's 25 LOIs and 25 properties under contract out of a direct-to-seller program; 7-cap tertiary deals drying up; the Federal Reserve raising rates, with Warsh citing inflation; crude oil up 61% year over year and a developer asking for another $300,000 because of steel; S3 Partners price-locking six projects with its GCs before breaking ground; construction debt moving from the high 5s to 9% and lease-up stretching from 12 months to 36 and 48; ARCO/Murray contributing roughly $2 billion of historic completion data to TractIQ; Public Storage's $600 million in cash, 8 handles on yield on cost, and whether development is still a priority under Tom Boyle; Noah Starr on Public Storage's advantage eroding as third-party management, software and facility-level data improve; the 18% IRR nobody can promise, and Warren Buffett's margin of safety; Thaddeus Campbell underwriting 24% to LPs on small-bay flex against a 16 IRR on storage; lenders placing 50% LTV debt on stabilized 5-cap storage; Blackstone divesting self-storage to chase data centers after selling Simply Self Storage to Public Storage for north of $2 billion in 2023; data centers as an election battleground, the House electricity bill and Governor Abbott's restrictions; $10 trillion of national refinancing over 12 months and the K-shaped economy. Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Overlapping backchannels and short asides ("Mm-hmm," "Yeah," "Agreed," laughter) captured as separate caption lines have been omitted where they interrupt another speaker mid-sentence; all substantive turns are retained. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— Chris Berg: Welcome to the Self-Storage Roundtable. I'm Chris Berg, head of business development with Abernathey Development. Join us today. We've got Noah Starr, CEO of TractIQ. Armand A, like to call him, with Store Here Self Storage. Thaddeus Campbell with S3 Partners. Guys, we're gonna jump right in. I'm gonna start with the most important, toughest question of the day: Lions or Bills tonight? You guys are like, whatever. Come on, the NFL season is back. Are you guys kidding me right now? Everyone looked at me like, are you crazy? Armand Aghadjanians: Yeah, football. Thaddeus Campbell: Barry Sanders is the greatest player I've ever watched play. Never got to see him in person, but the most exciting football player I've ever watched. So I'm going Lions. Plus I'm a Patriots fan and I hate the Bills, so I hope. Chris Berg: My gosh. All right, nope. No taking. Noah Starr: Except — gotta give it to Josh Allen, but Texas football with Arch Manning, that's the real story if we're talking about football here, okay. Chris Berg: Speaking of which, were you watching that game? Armand Aghadjanians: That's pretty good. Noah Starr: I was watching that game. I almost turned it off at halftime before losing faith, and then never mind, why would I do that? Chris Berg: Boy, when I saw you guys' faces, I was like, don't talk any football here on the Self-Storage Roundtable. You guys were just like, what? All right, let's jump into the good stuff. We had SSA last week. Noah, you had a booth. I'm assuming you had probably the most conversations of any of us here on the pod. So I want to start with you. What were the top two or three things that jumped out in the conversations you had that you feel like our audience should know? Noah Starr: Yeah, so it was a lot of fun. Great seeing you, Chris and Armand, Thaddeus. We'll see you next time. It's gonna be awesome. But yeah, I think I try not to take too much stock into the overall tenor of conferences because we've been cautiously optimistic for the last 5 years, right? And everyone likes to be excited together. What I think — on the transaction side, the weird dynamic I notice is that brokers seem to be doing really well, but investors are still really struggling to find deals that pencil. So that's probably the biggest dynamic that has changed in a quantifiable way versus conferences in years past. Chris Berg: But then as you say that and you go, hey, investors are struggling, but you say brokers are really busy, then who's doing the buying? 'Cause if you know, like, I'm all ears, my friend. Noah Starr: Exactly. And I think, well — I think, you know, we've seen the REITs, we've seen Public Storage be really aggressive. We've seen some of the larger institutional investment companies are still remaining active. I've talked to a handful of those groups. But even those groups will tell you it's hard to find deals. Extra Space on their earnings calls were saying how it was still incredibly challenging to find deals in their core markets with cap rates in the low to mid 5s. But, you know, I think it really depends on the group. And, you know, if it was that easy, everyone would do it. So I think some of these groups with data and their institutional knowledge and those relationships that they've cultivated for many years, they're still able to get things done. But I have to think Armand will have a lot to say on that too. Chris Berg: Yeah, Armand, I do want to defer to you, since we were just talking about the map behind you before our conversation here. But, you know, first let's start with SSA, because I know you have a lot of meetings and great conversations as well. What was your top two or three takeaways from SSA, and what do you want to add on here to what Noah had to say? Armand Aghadjanians: Yeah, I mean, just while it's fresh, I'll add on to what Noah has to say, because I was telling brokers pretty much the same thing. Most of my meetings are with brokers, just reminding them that we're still out there. But I've been telling them, you know, to just keep at it, because there's just more soft pressure. You have a lot of early 2020s deals that are needing refinancing, and that's going to basically force people to either put in more money or sell the property. And you're starting to see some of that this year. And so as long as brokers — what they care about is having a market, right? You need a willing seller and a willing buyer. And, you know, the first leg of the last few years there weren't as many willing sellers. Now they're ready to meet the market. And the problem becomes, well, you need willing buyers too. So the buying is becoming a little softer, is what I'm hearing from brokers as well. You know, you're gonna start seeing less call-for-offers dates. You'll probably see more rolling offers. And I think that just has to do with the market as well. But in terms of conversations, you know, it's funny. Armand Aghadjanians: I love the term "sector tourism." You had a lot of people looking into storage. They got into storage, then they kind of hop out of it again. That's happened. But what happens too is, within the sector itself, you have many different players on the field. You have developers, investors, obviously brokers. You have different types of investors. You have core-plus investors and value-add buyers. And everybody's looking at REIT buyers. They're all looking at these things differently. And it's funny, because you'll have value-add buyers say, hey, I want core, core-plus capital. And then I'll go talk to those type of capital groups and they're like, it's not as easy and simple as you'd think right now. It's hyper-competitive and there's a whole litany of other things to consider. Then I'll talk to developers and they'll say, hey, we should explore value-add. I wish I had value-add type of silo. And then, you know, they talk to someone like me and they're like, wow, it's really not as simple as I thought. So I think in every aspect of the field, wherever you're trying to make it work, it's still very challenging. And that's it. You know, you just have a lot of people trying to figure out creative solutions on how to make do of the environment. And so the spirit is high in that sense. Everybody I talked to is smart, tried to make things happen, and I appreciated that aspect of it. Chris Berg: Yeah, I think it's always intriguing because we talk internally here about it. Everyone's got different math. Like, we'll look at a deal and go, there's no way that's gonna work. And the next thing you know, someone's actually buying it or trying to execute it. And I say that in two different ways. One of the conversations I had in Vegas — and I've got a bunch here, I'll get to in a moment — but one of them was a guy's like, wait, man, I've got people that have got hundreds of millions of dollars that they need to deploy right now. Like, they're looking to deploy it. And so he's like, hey, do you have any opportunities? And, you know, that sort of thing. And the other side, I had a great conversation with a person in Public Storage. And he was talking about someone he knows where a very wealthy individual came into a group and said, look, just find me the absolute safest investment you have. I don't want to go buy T-bills, just find me something and let me deploy some capital. They're like, all right, let's go see what we can find. They come back to him and they're like, I mean, we're gonna get you like a 3% IRR. He's like, great, I'll do it. And just like gave him all this money and said, let's just go. And so I think, again, what are you solving for? What's your math? And I think people see sort of the tumultuous situation that's happening across the globe and they're just like, you know what, let me just go stick it in some land and something that's gonna give me a little bit of appreciation and things like that. So I think that's kind of what you're alluding to, Armand. There's just all these different silos and, depending on what your math is, some things work and some things don't. And so Thaddeus, I just want to get — I know that you were at kind of a personal company event with S3, if you want to share anything with that, or maybe you've had some conversations with people that were at SSA, or if you want to add any color here to what we've been talking about so far. Thaddeus Campbell: I definitely want to add color. I mentioned the boys from Homegrown a couple weeks ago when we did the last episode, had a conversation with them. You know, they're saying they're seeing some pain that they're starting to transact on. Just to give some color: 25 LOIs right now that they have signed, which is absolutely insane for a company that didn't own any storage 3 years ago. They have 25 properties under contract. But as they're doing — they have a big direct-to-seller program. And they're seeing people that are selling because they're distressed, which is something I haven't heard a ton about across the industry. I had Rob Cop, which many people know from Keep It Simple Storage, also built the American storage portfolio, of which he owns a few facilities still, as they divested that portfolio. He kept a few assets. He said he was privy to a sale recently, and this idea that we're gonna keep seeing 7-cap deals in tertiary markets, he thinks is gonna dry up very quickly. He's like, those barrels are emptying. To the point that was said earlier, where the buyer pool is no longer being as aggressive as they were one or two years ago. We posited on the show a couple of weeks ago — are there gonna be people, at least I think it was this show that we said it on — are there gonna be people that wish they had sold, right? That wish they had been a little less thinking that we were going to be back to 2022 rates in 2024, 2025? Because what it looks like in later 2026 and 2027 is it may be even a worse scenario than you would have gotten in the last couple of years selling your facility. Chris Berg: Yeah, well said. And I think, you know, you look at Matt Garibaldi, he's got a bunch of money. I heard from an Australian pension fund. So they took down, I think, 60 units in the middle of this year. They're doing another acquisition coming up. So again, what's your math? What are you solving for? I think one of the big conversations that jumped out to me — I had a chance to spend some time with guys from ARCO/Murray. And I'll share this with you guys and give you a chance to comment. With, you know, everyone obviously saw what the Fed did yesterday, raising rates. I don't think anybody didn't anticipate that. See if I can find this for you. But the big conversation — Thaddeus Campbell: There was somehow a 7% chance that they didn't do a raise. I'm still trying to figure out how it was only 93%. Chris Berg: So you talked to the guys at ARCO/Murray and other people that are obviously out there doing development. You know, one of the big conversations right now is just basic inflation. You heard Warsh yesterday say the reason we're raising rates is because of inflation. And then you look at crude oil, you know, year over year, 61%. I can go down here to copper, steel — those things are up as well. Steel not as much as you would anticipate, but, you know, still up. But I think people are starting to say, wait a second, if I see what's happening over there with the Strait of Hormuz and in the Middle East with oil, I probably need to start getting ahead of the curve. We're even — a gentleman that does a lot of development construction stuff said he's not the fun guy you want to see show up at his office right now, because he's saying, hey, I know I told you X, but I need another 300 grand for me to make this project actually pencil, because of where the price of steel is going. So I'd love to get your guys' take on that in the context of development. I mean, we've seen things, you know, slow down pretty dramatically in development the way it is. But, you know, if the 10-year continues to go up, you start to see more inflation on obviously the price of materials — is development gonna just basically stop? Thaddeus Campbell: I would jump in on this one early, as S3 Partners probably does more development deals than — maybe not as many as Abernathey, but we're pretty close. And I would say we're jumping to on anything. We're supposed to have six projects — I say "supposed to" for a very purposeful reason — six projects break ground in the next 3 months. We're trying to price-lock everything through our GCs, right? We want to get our materials bought as quickly as possible, because there's some, you know, thought process out there that steel prices haven't really changed because the steel vendors and the GCs are kind of eating the difference in the short term. How long does that last as the gap goes on? And, you know, the other flip side of that is, as interest rates start to rise, if you don't have your debt locked in on a construction loan, are you gonna get the same LTC that you thought you were gonna get? You're not gonna get the same rate. I mean, the 10-year's gone up by 57 basis points in the last 3 months, you know, so it's changing very quickly. Noah Starr: I'll jump in here. So, we're on our webinar next week, we're announcing our partnership with ARCO/Murray, who has contributed almost $2 billion of historic completion data with us at TractIQ. And we're gonna break that down entirely on our webinar next Wednesday. But I think — I was having this conversation with them and some other GCs because, you know, we now can actually see the cost per square foot, hard cost, since 2016 for all of their projects. And I think you'll be surprised to see what that's looked like for the last 3 years. But also to your point, Thaddeus, you know, there's a bunch of inputs that go into a development project. You'll have your cost, you'll have your interest rate, your leverage, all those kinds of things. And even if GCs are willing to take a lower margin on these projects, if the 10-year continues to stay above 5% — right now it's just under 5%, right? But, you know, talk about fixed-rate debt on a construction loan — I'd actually be curious, is that even something that's possible right now for S3? Because, you know, having floating-rate debt on a construction project to me is pretty standard and has been pretty scary over the last, you know, 4 to 5 years. Thaddeus Campbell: Yeah. Certainly burned a bunch of people in 2023. I'll — you know, I was with a different developer at the time, but we absolutely felt the pain when all of a sudden your two pains, right? We were underwriting in 2021, 2022 to these incredible lease-ups the industry was seeing, right? Facilities leasing up to economic occupancy in 12 months. Well, all of a sudden 2023, your lease-up is now back to normal, right? 36-month lease-up. In some cases I got people underwriting 42, 48 months. Your lease-up reserve needs went through the roof. You know, as construction debt went from — you know, we were seeing high 5s in 2022, 2023, you know, some people getting in the 4s if they were a seasoned person — all of a sudden you're paying 9% on the same construction loan. And, you know, you got to go raise more money, dilute your GP to be able to keep the thing going. Yeah, it's definitely something to keep your eye on for sure. Chris Berg: So, Armand, I want you to jump in here in a moment, but I think, based on what these two guys have said as of late, then we go back to what we mentioned last show: Public has got, I think it's below 5% money, right? $600 million in cash. They've got the Welltower JV. They've got a ton of — I mean, you start to go, okay, how do I — and they love to develop. I mean, they got 8 handles on their yield on cost according to their earnings. So you go, okay, so how do I compete with a Public? And just — anyone want to comment, thoughts on that? Armand Aghadjanians: Well, you know, they're not buying everything all the time, right? I mean, there's still — it's the same thing that we go back to, you know, same question for decades now. Like, you have the REITs, you have access to capital, lower cost of capital, how do you compete with that? I mean, you're finding ways. And, you know, if they're underwriting to core, core-plus stuff, I mean, their buy box is always shifting. They're open to a lot of things. There are certain things that they won't buy, which is where I see a lot of people buy stuff. But yeah, I mean, there's still ways to compete and make sense of deals. Chris Berg: I agree. That is — Thaddeus Campbell: I would simply say that where they're not buying, and where the deals are available from a ground-up development standpoint, they're inherently higher-risk projects, in my estimation, right? It's — you know, they're doing deals, and to your point, Armand, especially their ground-up development deals that are core-plus markets that a lot of times are hard for us to even get our hands on. People are going to them before it ever hits the market. And, you know, so you're put into that position where you're pushing to go do riskier deals. And it's quite frankly why we weren't at SSA last week. It's why we were huddled up in Denver working on our Small Bay Flex program, because we're seeing deals in that sector where I can still underwrite to a 24 IRR to an LP with a 7% plus construction loan, you know, which I can't find in self-storage right now. Haven't seen one — I've seen one come across my desk in the last year and a half that I would go build. And unfortunately someone owns the property and they're not ready to sell it yet. So I can't get it. So, you know, that's the reality of the battle you're fighting in development, Armand. Armand Aghadjanians: And another thing too, it's like, if you think about a competitive set on any type of offering or listing that's out there, one person steps up — but, you know, one person ultimately is the one stepping up on that deal and outbidding everybody else, right? But that sequence happens on every single deal, and often I'm competing with the same people I compete with deal for deal. It's just like, how do you know who's the one that's going to step up? You're looking for value in different ways. And maybe you see value where others don't, and other times, you know, somebody else does. So it's a matter of perspective and it's always just a probability of outcomes, right? Like, you're willing to take on what you think is risky and somebody else sees it as though it's not much of a risk. I mean, it all plays out in different ways and we're either right or wrong in different ways. So I don't think it's as simple as something that's black and white, like, how do you compete with anybody? No. Noah Starr: I'd love to jump in on this question, Chris. So first off, on Public Storage as development, I'd posit that with this change of new leadership, I'm not sure if development is as big of a priority for Public Storage anymore as it was. Well, I'll leave that to the side. I would also say that — Chris Berg: Wait, wait, wait, you can't just throw that out there and be like, I'm gonna now leave that to the side. Like, wait, what gives you any — Noah Starr: Well, I was gonna come to, you know, the other parts of my answer, but there's been a lot of personnel changes at Public Storage. And, you know, so I'd be curious to see if over the next year or two they attack development as relentlessly as they've done in the past. And if you look at the new CEO's commentary, it's less focused on development, it's more focused on NSA, Public 4.0, the Canada expansion, things like that. But I would also say that — go for it. Chris Berg: Can I just ask you a question? 'Cause you're speaking as if you've got some inside intel that you don't want to divulge. Is that true? Noah Starr: I would say that that's true, but I also know of a lot of folks who have left Public Storage in recent months who have focused on this problem. Does that mean someone else is going to pick it up to the degree of them? It's possible. But I think when you — that's like a leading indicator, and you could probably go check out who I'm talking about. But, you know, the other component — I would argue it's never been harder for Public Storage to have this advantage. If you think about technology, software across the board has gotten really good for every operator. Third-party management companies have gotten materially better in the last 5 years. Not to mention, of course, data, where 5 years ago there was no occupancy or achieved rates at scale, now there is, and all the other kinds of things that we talk about a lot. So, you know, I was reading something on an article from the SSA roundup — I forget who the person was, so sorry, feel free to drop it in the comments — but talking about how Tom, CEO of Public, mentioned how they're going to continue to be relentless in their competition, but also want to strike partnerships with the industry. So I think they're trying to walk the fine line of that exact thing. Chris Berg: Yeah, I think — I guess I want to share with you what's probably the best conversation that Nate and I had in Vegas. I don't want to disclose who it was, but this person's got a ton of experience in multifamily, other asset classes, so I will set the table that, hey, this isn't somebody that's just kind of showed up in Vegas. Like, ton of experience in real estate. And the thing that we appreciated so much, it was so candid. This person was like, come on, this is kind of a joke, what we do. Like, you expect me to walk up to you and go, hey, in 5 years I'm gonna give you an 18% IRR? Like, everything we've all just talked about over the last 20 minutes — the interest rates, cost of capital, inflation — come on. I mean, it's like nobody in their right mind can look you in the eye and go, yeah, I'm gonna generate this for you in 5 years with 100% certainty, right? And so the point is, I think we all know we want to be in hard assets. I think if you look at what the Fed's gonna be doing along with the, you know, Secretary of Treasury — we said this last week, don't be in USD. So as long as you're outside of USD and put into good assets — I think why this guy took the 3%. But I would love your guys' feedback, since you're all investors, on that commentary about, hey, how do I walk up to you as an LP and, with a straight face, go, hey, here's 18% in 5 years? Noah Starr: Well, I would start off — you know, Warren Buffett: be greedy when people are fearful and be fearful when people are greedy. This is healthy for the industry, to have all of these concerns. And anyone ever in American history who promises a 20% return on a real estate project, you should be very skeptical. So I think — Thaddeus Campbell: All right, can I amend my earlier comment? We underwrite to a 20-plus return to an LP based on today's metrics. How about that? I just got buckshot shot at me from two of the three corners in this. Noah Starr: You're not promising, you're underwriting. Yes, of course. And I wasn't talking about you. Chris Berg: No, that is — I'm not talking about you at all. I mean, we do the same thing. Thaddeus Campbell: You should have been, 'cause I just said we're underwriting to a 24% IRR, and you are 100% correct in saying that is a projection, and the reality is, you know, nobody's got a crystal ball. Chris Berg: Well, and to — Noah, I do want to hear you talk, so you're going on, but that is — you're also doing that to give yourself that buffer, right? That margin of safety. Three most important words that Warren Buffett says. Noah Starr: Margin of safety. Thaddeus Campbell: 100% was my point, right? We're looking at storage deals that underwrite to a 16 IRR. Do we want to go ahead with that much challenge on it? You know, if all of a sudden we stress-test that deal to a 1% higher construction loan and a 1% higher long-term debt, maybe 10% or 15% lower rates, it's an equity loss. Right? So yes, I appreciate you guys giving me the room to clarify that, 'cause you're right to say you can't go out and say — you know, we're guessing to a certain element. Noah Starr: But I would even say, Thaddeus, you are underwriting using defensible assumptions, you're being thoughtful, you're doing all the blocking and tackling, you're taking in all the data, right? My comment had nothing to do with you. It was more Chris's comment saying, you know, maybe the years past people would look and say this is a — Thaddeus Campbell: You should know me well enough to know that I'm gonna make it about me at some point in the conversation, Noah. Chris Berg: No, the floor is yours. I'll put everything else on mute. Go ahead. Noah Starr: No, I just think this is healthy, and this is also when other folks are excited to buy, right? Like, if you look at cap rates now in tertiary markets in the 7% to 8% range, you look at all of these scary macro trends — you know, if everything was sunshine and rainbows, we'd be back into the 4-cap range and it would be easygoing. But I think, you know, some of the best investors that I know see all of this and they get excited, because there's all these barriers and there's all these, you know, fearful points. And if, of course, they underwrite the hyperlocal market and they find a deal and they pay for it, it's 30% list price, things like that. Those are all dynamics that 5 years from now could be, "of course that was the right time to buy." Again, none of us have a crystal ball, but I think this is the industry being healthy and being thoughtful and being rightfully skeptical about what the future holds. Chris Berg: And just to speak to that about the advantage over a Public Storage, as I, you know, posited that question earlier — I mean, the person I just mentioned that talked about the pro forma is also doing a giant project in Southern California that probably never gets done if he doesn't have the relationships with the city that he has, right? So again, does Public have that? Maybe at some level, but I'm presuming that probably not the same level that the smaller teams are gonna have. So I think there are some strategic advantages that you can utilize here to go and get some things done. So the other interesting conversation I had, gentlemen, is I had a conversation with some capital people, and they said they've been pleasantly surprised at how many people are reaching out about development deals. So just wanna put that out there. Any thoughts, comments on that before I move on? Armand Aghadjanians: Do you mean lenders? Like — Chris Berg: Yeah, guys that are doing debt and equity, and they're like, man, we are being kind of shocked at how many people are legitimately reaching out with development — not just like sniffing around, kicking tires, but like actual deals. Armand Aghadjanians: Well, you know, in the whole realm of commercial real estate, it's painful to be in storage a bit right now. We have our issues, but so does every sector. You know what I mean? And they're just looking at numbers. They're looking at default rates and whatever else. And to them, I mean, self-storage is attractive. I mean, they're placing debt at — it's more like stabilized deals, but pretty solid debt yields, low LTV. I mean, their probability of equity loss on these is very low. So yeah, of course they're excited. I mean, 50% LTV deal on something that's pretty much stable — yeah, it's like a 5 cap, that makes sense. And I just think that a lot of lenders look at this space and they're very interested by the sector, because historically it has proven to do great. So yeah, I think that there is — as long as there's capital available out there in the ecosphere, self-storage is gonna be one of those products that lenders are excited to lend on. So, you know, what happened post-GFC up to like 2012, when development really screeched to a halt and dropped like 80%, which it did — which we're not seeing anything close to that happen. I mean, it was literally impossible to find financing for anything. The whole financial system, you know, globally had crashed. So that was a way, way different environment than — yeah, you're feeling pain, but the mechanics underneath are just totally, totally different today. Chris Berg: I was gonna say, that's the invention of private credit, and we'll see how that plays out over the next few years. But I wanna play a clip for you guys that's, I think, very interesting. And then I'm gonna share with you an article and then give you guys a chance to comment. So BlackRock has just come out with a really great — excuse me, yeah, it is BlackRock. Blackstone. I'm sorry, Blackstone. So Blackstone just came out with a really great pod that they do. Looks like it's weekly. But great insight. If you're not familiar with Blackstone, you're gonna hear it here. But they own like 13,000 assets, all different asset classes. I think one of the things that Blackstone sort of tips their hat to is like, look, we've got all these different assets across the globe. We can see inside a bunch of different businesses that are happening. So again, they're using that data to go out and project where they're gonna deploy capital to chase yield, right? We all get that piece of it. So I want to share this with you, what this gentleman has to say, and then share with you an article and just get your thoughts. Chris Berg: So, proprietary data, how they deploy capital. And then I wanna share this with you and get your thoughts. Back in August is when Blackstone basically divested out of self-storage to go chase data centers. We kind of alluded to this in the last show. Thaddeus Campbell: Shout out to the boys at Kiwi Two. Armand Aghadjanians: I mean, I have a question about — what does it — are we certain that they're divesting in storage to reallocate into data centers, or they're divesting in storage right now and they're also allocating into data centers? 'Cause I don't — I guess, you know, it doesn't really matter. They're picking one over the other. But, you know — Chris Berg: I guess what I'm getting at is, like, you heard Thaddeus say, hey, I can't underwrite anything right now to make it make sense for our LPs. You see a person, you know, a company like Blackstone basically saying, hey, we're gonna sell off our last portfolio of self-storage to go chase yield somewhere else. I'm just asking you, hey, are things tougher than maybe we want to admit, since we're in the business? Or what say you about that situation? Armand Aghadjanians: Well, from what I read from the article — and I'm jogging my memory — but, you know, most of those were 2020 acquisitions, right? So who knows, maybe it was just like a financing thing or whatever else, and they were profitable on the disposition. I don't know what the return was, but it's like, at some point you have all these assets, you take chips off the table and you just hang on to the next thing. It just cycles. Like, I don't think of it as anything different. Blackstone is not like Public Storage or any of the REITs. They don't hang on forever. They bought Simply and then they sold it in two years. You know? Chris Berg: I'm not suggesting they are, but that's what I'm saying. If you're gonna go get capital, you've got to obviously make your LPs happy at some level, right? Again, unless the math is different. Noah Starr: Yeah, I would add in that — so they acquired most of these assets between 2019 and 2020. They also sold Simply Self Storage for north of $2 billion to Public back in 2023. I have to imagine these assets from 2019 to 2020, they did extremely well on, right? They bought all of these pre-COVID, and I have to think that for them to take probably profit off the table made a lot of sense, because the IRR and return profile of those deals relative to holding them — you know, they probably feel like they can take that pool of capital and over the next 5 years investing that into data centers makes more sense than retaining these assets. I think Armand's point is, we don't really know the exact circumstance between this bucket of capital, but we do know they are not, to Armand's point, Public Storage or Extra Space, who are committed to self-storage for the long haul. I think you're right, Chris. They could have said we're gonna take this and reinvest it into self-storage, which they did not, because they're obviously looking at and thinking that the yields for data centers make more sense — which I would be very curious and skeptical of, just based on how much capital has flown into the data center space. But I think that's a whole other topic that we can go down to. Armand Aghadjanians: Let's go to this. Chris Berg: I mean, I'd love to hear your thesis on that at some point, because it's like, how many people are gonna be your buyers of those, right? Like, what's your exit on a data center? I don't know. Noah Starr: NVIDIA, we're good. Chris Berg: They're gonna start buying data centers now too. Okay. Thaddeus, you're up, my friend. Your comments. You've been kinda quiet on this one, Thaddeus. So let's go, man. Thaddeus Campbell: Couple things. I have thoughts. First, one of my favorite things about capitalism is, as companies grow bigger, the person making the decision sometimes loses that power and they tend to make decisions that aren't always great. And we've seen that over and over again throughout the history of the United States. So God bless Blackstone — RTC, right? Go back two cycles ago. You and I, all of us talked last podcast we did, we tend to think that we're going into a recession. The last one was GFC, the one before that was savings and loan. The government created the RTC to divest those assets the savings and loans went upside down on. That's where Blackstone got their start. So I just think that's fascinating, that that company was built in the shadow of a major financial crisis in the United States. Fast forward to now: I don't know if anyone got bombarded while watching — speaking of Detroit and the Buffalo — all the political commercials. You're gonna see how many of those candidates are pointing out data centers as a major battleground for this upcoming election. I think that's fascinating. So when you talk about Blackstone betting heavy on data centers, you know, I'd be shocked if the Democrats don't win going away in the House at a minimum. And is there going to be massive pushback on that area, and are you going to be able to see the returns you want to, just from a legislative aspect? Chris Berg: It's so fascinating you say that, because when this whole conversation with Dario from Claude came out, and you had Sam Altman jump on the bandwagon about the dangers of what was happening — and Thaddeus, I want you to speak to this. Thaddeus Campbell: 10% plus. Chris Berg: Because we talked about it internally as a team, and just from my media background, when you see a front come out like that together holding hands, you're like, mm, something doesn't feel right. Like, what they're saying is not the real story. I think it's actually a capital story. I think they're starting to say, wait a second, we put so much money in these things, we're not really — even though I know their revenues are going through the roof — we're not necessarily seeing the ROI that we anticipated, and we're gonna need some way to save face. And you start talking about government regulations and it's pretty easy to blame them and go, hey, you know what, we told you X, it's gonna be Y, but it's because the government started to regulate us. And just today the House passed a bill where no longer can data centers pass on the expense of electricity onto the consumer. I know it's gonna get through the Senate — but no longer can data centers pass that on. They're gonna have to, you know, eat that themselves, eat into the NOI. You look at Governor Abbott out of Texas is now restricting data centers, right? Did you see that interview on — I think it was on CBS, Noah? Thaddeus Campbell: Unbelievable. Armand Aghadjanians: For a little bit. Till they figure it out. Noah Starr: I actually didn't see that, but I think, you know, the parallel to that was — I have a lot of friends from the SFR, you know, single-family rental space, and earlier this year, late last year, when the government was threatening to ban institutional sales of homes, the capital markets froze. Transactions halted for that period of time when there was uncertainty. So I think, you know, if similar regulation comes to data centers, the exit is questionable. Especially — we can have a whole podcast talking about data centers and the needs of America for bolstering AI and electricity and all of it, which I think is really, really interesting. But Blackstone obviously underwrote this, right? And they had some pretty smart people and pretty smart data to indicate that they priced the political risk in, and they feel probably that the return profile for this asset class still trumps any regulation that could hit that sector. Armand Aghadjanians: Well, if you're able to complete these projects before regulation kicks in, I mean, those are gonna be exponentially more valuable, right? So like, with the existing data centers, and buying them now, or anything mid-construction — and then regulation happens and nobody else could build — we know supply and demand. That really changes things and locks them in. So who knows? Thaddeus Campbell: Your value — 100%. They limit the new supply. Chris Berg: It does. I mean, I think honestly Elon's right. These things are all gonna be in space anyways. And so it's, you know, get your returns now. I'm just telling you, man, in 5 and 10 years we're gonna be like, okay, that thing's circling the world. But all right, guys, let's wrap it up. I'm gonna give each one of you the last word, and Thaddeus, we'll start with you this week. What else do you want to share, sir? Armand Aghadjanians: Yeah, maybe far out. Thaddeus Campbell: This is such a fascinating conversation. I would look forward to discussing it more, because there's multiple levels here of where we're at in the world cycle. Chris, you and I have talked about the cycle of the United States and where we're at as a nation. And I think that the political implications of what's going on in the AI and data center realm are vast. You know, what this means for our country on the world stage — we just had Canada get invited to be a — I can't remember — advisor. This is — it's fascinating to me. I know this is a self-storage-centered podcast, but look, most of us are running self-storage in the United States, and the general health of our country is implicit in the health of our self-storage portfolios. We could definitely have a conversation about this that would be 100% apropos to self-storage. Chris Berg: Love it. That'd be awesome. Armand, you're up, sir. Armand Aghadjanians: Yeah, I mean, I think you've had, since 2020, supply shock, then you had Ukraine supply shock, then you had Iran supply shock. I mean, I think we've been desensitized to kind of what the future might look like. But I wouldn't let the uncertainty kind of bog people down. You know, you're looking at the 10-year and it's like, all right, well, maybe post-GFC was an anomaly at 2.2% average. And 6% is kind of normal. And actually things are pretty fine. You know, the issue really is, when we're in commercial real estate, you had so much going on the last few years that that segment — there is a pending resolution cycle to that. It needs to resolve itself. It's either gonna happen quickly or slowly, but it will resolve itself. So prep for that. Don't — you know, if you got uncertainty and anxiety from that, like, keep yourself busy and you'll stay happy. So I'm staying busy. So everybody else, stay busy and be happy. Chris Berg: Armand, we're losing — so I'm gonna just add on to what he — not to put words in his mouth, my own take on what he's saying. There's like, are we fine if — Armand Aghadjanians: Sorry, go ahead. Chris Berg: I just want to drop this in here, and then Noah, I'm gonna give you the last word. Just keep in mind, over the next 12 months, we have to refinance $10 trillion — with a T — $10 trillion dollars as a country. And if you see things go above 5.5, we're already well above, you know, 100% of tax receipts. You're gonna see the Fed and the Treasury Secretary play a lot of games. And again, that's why I say get out of USD. This is not financial advice, just my opinion. And if you're in hard assets like we are, if you're in the upper, you know, K of the K curve — like, K-shaped economy — I think, yeah, you can just stay busy and work hard. But if you're not in the upper part of the K, like, you're like, man, what is happening right now to my ability to put food in my family's mouth? So, Noah, not to give you the last word on that note, but you're up, my friend. Noah Starr: No matter how hard we try, no matter how many LLMs we have, all the culmination of human knowledge in history accessible in an instant — none of us can predict the future. That is still so — I actually hate the word "uncertainty." And it drives me insane when the Fed chairman says the word "uncertainty," when the Wall Street Journal says the word "uncertainty." When has there ever been a period in human history that there was certainty about the future? Never. And what's amazingly interesting about humanity is, we are unpredictable. A lot of these problems are self-inflicted, right? We all make mistakes, we all try things, we succeed, we fail, all of it. So I think it's — we learn as much as we can, we try to block our downside, minimize our risk, try to be honest, act with integrity, and be curious. And I think the people that do that will continue to succeed, the people who don't, won't. So I think all of that is so fascinating to dive in, but I never lose sight of the fact that we're all trying to predict the future and it's impossible. Armand Aghadjanians: Are you telling me that all of the underwriting we've ever done has been wrong? Which is true. It's always wrong, right? Chris Berg: Always. I mean — Noah Starr: It's always wrong, but you do it to block your downside. You do it to be responsible. You do it to understand risk-adjusted returns, not just returns, right? Any IRR can be 20% if you jack up rental rate growth, right? But we're all just trying to predict the future and leave a margin of safety, and it's really, really hard. That's why we all are excited and are doing our best to play in this space. It's because it's so interesting, and yet — if it was that easy, it wouldn't be interesting. Thaddeus Campbell: Every time. Chris Berg: What I wanna say at the end of your first little last word there, Noah, was: "and I'm Noah Starr and I approve this message." Like, that was a great pitch, bro. That was fantastic. So I'm gonna leave it at that, because I think that was very well said. I'm Chris Berg with Abernathey Development. Thaddeus Campbell, S3 Partners. Armand A with Store Here. And Noah Starr with TractIQ. Noah, I do wanna give you one last word, just so — we've got a couple more minutes here. If you would mind giving us a sneak peek preview into what exactly this JV with ARCO/Murray is gonna present to developers, people that are TractIQ members. Noah Starr: Sure. It's not a joint venture. They're just contributing their historic completion data to the industry so that we can actually underwrite with actual hard cost, actual completion timelines, actual efficiency ratios across buildings. How long does it take to build in California versus Texas? All of these things that maybe you have 5 or 10 or 20 projects that you've looked at — this is $2 billion plus of projects. So we're gonna break it down with Eric at ARCO, and then Danny Cunningham is gonna walk through one of his development sites in Texas, and Rachel Parham from the Parham Group is also going to break it down. So I think it's gonna be a really interesting episode on development, but also the first real unlock into historic construction data that I've ever seen. Chris Berg: So they can actually give you budgets from projects all over the country that you can go and look at, and — Noah Starr: I'm looking at it on my screen right now. It's pretty awesome. Chris Berg: Do you want to share your screen? Thaddeus Campbell: I thought you were only allowed to do one major product partnership improvement per year, Noah. This is getting to be obnoxious. TractIQ is just lapping the field right now. There's a reason I call you the data king. Armand Aghadjanians: Actually, yeah. Noah Starr: You know, my team does this — they're like, Noah, can't we stick with like one thing per quarter? Thaddeus Campbell: By the way, Ethan Gallowitz, your CPO, on tomorrow with me at 12 o'clock Eastern time. So I'm very much looking forward to picking his brain a little bit. I couldn't forgo the shameless plug, but kudos to you guys. And Chris, thanks for letting him speak to it, because what they've been doing for the last year is absolutely mind-boggling. The improvement — and Noah, kudos to you, because it's been fun to watch the relentless pursuit of a better product that you guys have been after. Noah Starr: I appreciate all of you. You guys are awesome, and we're still like — on this call it kills me, all the questions we can't answer. So that's what we strive for. Chris Berg: So, Noah, if people want to register for your webinar, how do they do that? Noah Starr: I could drop a link in the comments, but you can go on our website. There's a link to our webinar. And all of you have been on it except for Armand. So now that Armand does podcasts and videos, we gotta get you on to break some of this stuff down. Armand Aghadjanians: Oh yeah, for sure. That's exciting. Chris Berg: Okay, great. Thaddeus Campbell: We might get Store Here to buy a property here if we can get him looking at doing the TractIQ integration in his underwriting. Armand Aghadjanians: Yeah, we're headed in the right direction. You know. I'm not too nervous. Chris Berg: All right, guys, check it out. TractIQ. Again, I'm Chris Berg, Abernathey Development. Thanks for your time. We'll see you back here next time on the Self-Storage Roundtable. Have a blessed day. — END OF TRANSCRIPT —