Self-Storage 2025–2027: Booming or Bursting? | Market Cycles, Gen Z Demand & Investment Strategy

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Self-Storage 2025–2027: Booming or Bursting? | Market Cycles, Gen Z Demand & Investment Strategy Guest: Thaddius Campbell — Director of Business Development & Strategic Branding, S3 Partners; host of the Stories Behind the Door podcast Host: Chris Berg — Abernathey Development Recorded: July 12, 2025 Video: https://www.youtube.com/watch?v=VxTiYj8HlXk Key topics: Square foot per capita from 2014 to 2025 and the path above 8 sq ft; Radius+ delivery data and 1,250 new stores; tertiary markets vs. top-50 MSAs; Joe Margolis and Extra Space's 50% drop in third-party management requests at the Illinois SSA; Tyson Huebner and Yardi Matrix search-term data; Trojan Storage and the passed Sacramento site; Sam Zell on supply and demand; Abernathy's defensive underwriting and Blackstone's King of Capital; 6% of baby boomers vs. 16% of Gen Z and millennials using storage; KB Homes walking from 9,700 land contracts; Phil Anderson's 18.6-year real estate cycle and The Secret Life of Real Estate and Banking; the One Big Beautiful Bill, QE and the 10-year; copper's all-time high and the winner's curse; Toy Storage Nation and the California Self Storage Association Note: Speaker attribution reconstructed from raw captions. Light cleanup of transcription errors only; wording preserved. Timestamps and YouTube chapter markers removed. Turns marked [attribution inferred] could not be attributed with certainty. ————————————————————————————— Thaddius Campbell: Hello and welcome to the self-storage report. I am Thaddius Campbell, director of business development and strategic branding for S3 Partners, host of the stories behind the door podcast, my co-host, the handsome Chris Berg, uh acquisitions lead for Abernathy Holdings, host of the CRE Report. Super excited, a lot to cover today. We've been diving deep into the housing market and what it means for storage. have a bunch of of great storage data as well today, Chris. Chris Berg: Yeah, man. I look forward to jumping in. I've got some really good insight as well from uh the CEO of Extra Space. He recently spoke at the Illinois SSA. So, I don't think I've even given you that nugget of information. Thaddius Campbell: Usually, you tease me with your stuff. Chris Berg: Yeah, Thaddius Campbell: you held out on me today. Chris Berg: And it's going to tie in really well to some of your conversation around square feet and supply and um so he dropped some some hot tea recently at the SSA that I think might surprise you, my friend. Thaddius Campbell: I love it. I know you also have a clip teed up from Philip J. Anderson, somebody that you and I have read extensively and and I'm still jealous that you've had him on your podcast before. Um, I want to dive in. I promised last week to the people who follow us that I was going to get some square foot per capita information for people. So, I want to dive into some some data that was shared with me by my friend Steven Ross. Speaking of extra space, Steve came up through Extra Space, now does feasibilities on his own. Apologize that we're going to have a little infinity view there for a second. We got rid of it quick though. This tracks the square foot per capita number going back to 2014. This is out of the storage almanac. So Steve keeps very close track of that in his role doing feasibility studies. Important numbers for him to know. A couple things I want to point out. You see from two se 2017 to 2018 a pretty significant drop that was responsible uh the reason that happened was they changed the way they categorize various facilities and a bunch of facilities no longer counted towards the total square foot. They rate them A, B, D, F the stuff that was an F got washed out. Um so you you went down from 7 to 5.4 before, but look what's happened from 2018 to 2024. And I'm going to share another graph here in a second that's going to help illuminate why this has happened and actually show that as we've gone into 2025, we're probably going to be north of 8 square feet per capita nationally based on the total deliveries last year. And quite frankly, I'm going to stop sharing the screen here for a second, Chris. These numbers are getting a little scary as a self-storage developer as you're starting to see this supply growth. I had Maurice Pagota on the podcast last week. Maurice is the largest owner of storage in Michigan, has been developing and and acquiring since the 80s and said, "I can remember when if a market had 2 square foot per capita, I would not build a new facility there." So, it it begs this question of when are we going to get to a supply growth number that really starts to impact the long-term viability of a facility? I'm gonna show and and feel free to chime in here at any time. I'm gonna pop up. Why is that not popping up? I'm not seeing the You're not seeing the supply. There we go. All right, I got it. Okay, so this is Radius Plus thanks to my buddy James Mlan. They track the deliveries of self-storage facilities year-over-year. This is broken down into markets. You can see the blue at the bottom is top 50 MSAs. The green in the middle, lighter green is 50 to 100. And then the dark green is all other what we would typically consider tertiary markets. And there's a couple things I want to point out on this data that I'm paying attention to. If you look back in 2017, 2018, 2019 as the storage boom really got started, a lot of activity in the top 50 MSAs, right? 60% of the deliveries, uh, you know, almost 60% were top 50 markets and they finally broke over. If you actually 2016 was less than a thousand deliveries, they started breaking 1,000 deliveries a year. COVID obviously put a little bit of a kibosh there. I fully expected after 2022 with the interest rate hikes that 2023 and 24 would be down years for storage deliveries. The exact opposite happened. The last 2 years have been the the strongest two on record. But the thing that really leaps out to me here is if you look at 2023 24 versus 1819, the staggering drop in top 50 developments versus the incredible growth of tertiary market developments. And so what do I see when I see this? By the way, the 2024 deliveries are not reflected in that square foot per capita number yet. Which is why I believe with another 1,250, 1230 stores coming online last year, we're going to be over 8 square foot per capita when the number comes out this year. But how much development can we do in tertiary markets and still sustain long-term the ability to go achieve rents that are going to make a a new development work? We've been talking a lot about the what's going on in the banking world, how we have some debt that's outstanding that that could get a little scary. And so this number scares me. you're building, you know, 1,100 1,200 new self-storage deliveries in tertiary markets. How many of those fail to produce the revenue that a pro forma might have projected and what does that end up doing um on the on the debt side of it? Something I'm really keeping my eye on as we start to get more data on 2025. Chris Berg: Yeah, I mean I think it's going to be interesting to see how those things play out, right? There's already markets right now where you start to see these rate battles taking place. Tyson Huebner from Yardi. We'll talk more about him in a minute, but he's mentioned some smaller markets. I think it was around Atlanta. I could probably bring up the LinkedIn post he did recently, but just he mentions how, excuse me, it was Alabama where, and I think this ties into the real estate cycle that you and I continue to talk about. What happens is if you look at how you mentioned the top 50 there are starting to get squeezed more, it's because the land's just too expensive. It doesn't pencil. But guys like, hey, it's storage, man. You remember when everyone was just crushing it, you know, during the COVID time? Like, let's go build these things. Yeah, that takes time. And so you get the land under contract. Then next thing you got a build. You think, "God, we can still make this happen, but more and more supplies coming on, rates are going down." And then you're like, "Wait a second. What just happened?" Like, "I got a really low interest rate. Now I've got to probably refy this thing at a higher rate. My my like you said, my performance is not performing. Now what do I do?" And I don't think we're there yet, but I think people were chasing the cheaper land because they just figured, hey, it's a great asset class. people love storage. I'll make it work. And it doesn't always work out that way. So, I'm not saying there's a lot of distressed assets out there yet. And I think some guys are seeing some stress. Yeah. Thaddius Campbell: I think that what's going to be interesting that you know, two things that I would say. The first thing is we've still got another 12 to 24 months of pro forma lease-up on those facilities that open in early 2023 into 2024. So, there's still a window there for a catchup, so to speak. Um, where it could become really challenging is the guys, you know, you if you started building and opened a store in 2023, you likely started underwriting in 2020, 2021. Were you caught in the COVID wave and saying, "Hey, this is going to lease up in 18 months." Because if you didn't give that 36 normal window of time to lease up and then all of a sudden we know we've talked a lot about the compression of rates over the last 24 months finally starting to see them tick back up again. If you're missing your pro forma rent number by a significant margin, but then you're also missing the lease up velocity if you're combining those. And then throw in the third factor. Instead of a 5% construction loan that you might have underwritten to, a lot of those facilities in 2023 2024 were in doubledigit construction uh rates for their construction loans. So you're putting in a bunch of factors that are really challenging. As you said, when it comes time to refi out of that original loan, are we going to start to see a little bit of pain in the market, especially on some of those tertiary uh assets that are challenging? Now the flip side of that is and where I think there might be some saving grace is the big players in the world, the Merit Hills and the City Lines and the Prime Groups and the REITs, they're buying now in tertiary markets where they didn't used to and they're paying uh above replacement cost for these these facilities. So there may be some salvation for developers there just from the ability to sell to some of these big groups. may not make the profit they set out to when they first got into the deal, but will it create a ton of distress? I don't know. Will we see more consolidation? That's kind of where I think things are going. We're going to see the big boys be able to continue buying um on these assets that maybe don't have a ton of upside cash flow, but because they're modeling, because they're adding economies of scale, we're going to just continue to see the the consolidation of the industry. That's my take on the data I'm seeing. Yeah. I think one other thing that we're not talking about that's going to be interesting is you mentioned, hey, this thing might hit 8. Um, there's been a lot of deportations as of late, right? And so remember, I mean, there's a flood of people coming across the border. That's why you're starting to see Canada do really, really well as far as numbers and rates because there's been a ton of immigration to Canada. Now that that's being limited and even squeezed out of the States, I don't know what that's going to mean for the numbers, but I think it's another variable that you definitely have to consider, especially as a developer. I want to dig into you guys and and Abernathy specifically and talk a little bit about you folks strategy because you're very deliberate about where you guys are going about seeking development opportunities. Tell me a little bit about that and how you're you're kind of guarding against the oversaturation in some other areas that are happening. Chris Berg: Yeah, I think one of the key things that we really talk a lot about and it's our defensive strategy and I don't think there's a lot of people especially again when you saw these high rates during COVID I'm not sure a lot of people were taking that approach because they just thought man these returns are going to be incredible right um it's sort of like I think what we might end up seeing in data centers but right now people are just putting so much money into data centers but at some point that becomes oversaturated and you can see the same thing happening here so what we do is we really take more of a a blackstone approach you know Stephen Schwarzman. I think I've told the story on here before, but if you've never read his book, it's called King of Capital. It's fantastic. And he says the second deal he did went awry. And he says from that point forward now, every time we get in front of the investment review committee, the first thing the guy needs to do that's pitching the deal has to tell you why it's not going to work. Right? So, we spend a lot of time when we're doing our underwriting and go in front of our investment review committee talking about, okay, let's talk about why this won't work. like what other dirt might you know somebody step in and be able to build next to us and we want to get really good at building our defensive strategy as much as we want to understand the offensive strategy as well. Thaddius Campbell: you know, noting that you guys are really concentrating on California as well, which a lot of developers avoid completely because they don't like necessarily the entitlement hurdles that you go through, but those entitlement hurdles really kind of act as a buffer for you guys where you you don't necessarily have to worry about 5, 8, 10. I saw a project the other day where, you know, it was 13 existing square foot per capita in a market. Yeah, there was growth in the market, but there was another 13 square foot in the development pipeline. Thaddius Campbell [attribution inferred]: It it just you listen, Thaddius Campbell: it's it boggles the mind. And and going to this point, I had a conversation earlier today with a a contractor, a GC who does a lot of work for private families. And I think that you have those people out there, like you said, that are not merchant developers. They're not self-storage developers. their families that have heard about self-storage, that know the long-term cash flow that it produces, aren't worried about a 36-month lease up because they're using their own money to build the thing. And, you know, if 20 years from now it's producing uh cash flow, they're happy. The question, of course, becomes, will it be producing cash flow 20 years from now? You know, I guess if you put your own money into it, you you can get away with that. But it's challenging developers around the country for sure in self-storage with how do you responsibly I and I love to use that word responsibly. I again credit to James Mlan at Radius Plus who always says the biggest threat to storage is irresponsible development. I don't know if he's the first guy that coined that but I hear him say it all the time so I'm giving him credit. It's hard to responsibly look at a site with other development deals in the pipeline and feel like you're doing the right thing by moving forward on a storage development right now. Not that there aren't places to go find that there aren't other people, but definitely, you know, areas where you've got 2, 3, 4 other developments in the pipeline. How do you move forward on a project? I, you know, that it boggles my mind every time I see it happen. Chris Berg: I think a few things there. one, I've probably shared the story before, but we had a really good looking site just south of Sacramento that we wanted to build on. And then we found out that Trojan Storage was going to build a mammoth like 200 250,000 square foot site literally across the street. And we said, "Hey, good luck, Brett. Like, you guys go take it, enjoy, build a great asset. We're going to go because we didn't want to get in that ECRI battle, right? That lease-up battle. It just hurts both parties. Um, and it's not good for anybody." And you talk about irresponsible development. I think the other thing that's important to know is I love the story of Sam Zell and he talked about this all the time when he was alive when he first walked into his first University of Michigan econ class and the professor on the board all it said was supply and demand. He's like, "Look, that's the basics." And that was one of the I think pillars of Sam Zell is he always ensured, okay, what's my demand and what's my supply? I think that's one thing the more and more I hear from the best in the business that is they don't really focus so much on square foot per capita is they're much going okay so what's my demand, right? like I don't want to get stuck in this one number because if you look at Boise and the demand is really really strong which it has been over the past few years you still haven't I haven't checked recently but you're still in pretty decent rates in Boise you know compared to construction costs even though the square foot per capita was going up so I think that's an important thing to look at as well is how do I measure my demand to ensure that if I'm going to build this there's enough demand here to you know not get in these lease-up battles and just obliterate my rates Thaddius Campbell: you know to your point there's places in Florida where you have so many retirees. You have so many people that don't claim their residence there where you see some areas where there's 14 15 square foot cap per capita but occup you know occupancy rates and and rates of actual rents tell you that there's still demand for storage there. So yes, you know, you obviously you and I are super on the same page as far as capitalism and the belief in supply and demand and sort of letting the market play itself out in a certain way because as much as you're going to have those Sam Zells of the world who really stay tried and true to that, we know there's going to be other people that jump on the bandwagon and ruin that supply and demand battle and ultimately pay a price for that down the road. Are we going to see that in a big way in self storage? It's hard to imagine that, you know, 1,300 new deliveries in 2 years in tertiary markets in the United States can't bring some sort of pain to some of the people who built those facilities. It's hard for me to fathom that, especially as you said, with what's happening in demographic trends around the country, even if we aren't deporting people at a at a huge rate, which we're obviously trying to as a policy. Say what you want about, you know, the what you think of it. We're not talking about that. We're just talking about the reality of what's going on. There's also a slowdown at the border of people coming in and and I think that's going to be even a bigger effect on what we see populationwise. Obviously, you guys in California, we talked about this extensively last week with the secret conversation. You know, that have a have a history of that population being a big part of what's going on in the state that's slowing down for sure. Chris Berg: Yeah. Yeah, and I think just to kind of put a button on this is the fact that if you didn't hear what the Secretary of Agriculture said this week, she talked about uh hey, the deportations, we want to be wary of what we're doing here with the farmers and the egg workers. And yet uh these were her words, not mine. We are obviously going to lean on automation and oh by the way, we've got millions of people right now in Medicaid that are able-bodied people that can go to work. So that's part of their strategy. I think that's one of the reasons they cut some of the Medicaid and the one big beautiful bill is like, hey, you guys can work. We're going to get you back to work and we're going to make sure you're working because that's one way you're going to get the Medicaid. So, I just think that there's other dials to look at that again are going to speak to a lot more people. I don't know. I see you say a lot, but more people leaving the country than maybe we anticipated. Thaddius Campbell: Definitely agree with you wholeheartedly. I I'm going to throw this back at you. I finished my piece of it for the day. I know you had a couple things. you you teased me earlier with some stuff from the Extra Space CEO. So, I'm looking forward to see what you Chris Berg: I want to speak to that because obviously, you know, we use public storage as of right now and we're open to extra space as well that to manage our stuff, but Extra Space has really been dominant when it comes to third party management. So, you talk about, hey, square foot per capita, all this development happening. Um, I think if you look at the numbers though and you go beyond 2025, this is one of the things that gets a lot of developers excited is that, hey, there's there's not as much supply coming online. and we anticipate rates going up when we finally open doors in, you know, a year or two. And then at the Illinois SSA per Tyson Huebner, um Joe Margolis said, "Hey, we've seen a decline in requests for 3PM from developers." I want to ask you, because he gave a percent, what percentage of decline do you think he's seen as far as people calling in and say, "Hey, uh we're looking for a third party manager." Thaddius Campbell: I'm going to say a number and it's not going to be a small one and I I'll tell you when I'm done and you respond why I think that might be. I'm going to say 20%. Chris Berg: 50. Chris Berg [attribution inferred]: They've had it cut in half. And half. Thaddius Campbell [attribution inferred]: Wow. Wow. Chris Berg: I don't know if that's from an all-time high or in the last 12 months. That wasn't clear in the information I got. Point being, that's a huge number. Thaddius Campbell: It's a massive number. I thought I was going high to 20. Chris Berg: Thank you. Thank you, bro. So, you're talking about half as many requests. And again, this is a big driver right now for Extra Space's business model. Thaddius Campbell [attribution inferred]: Of course, Chris Berg: half as many requests of people coming out and saying, "Hey, uh, we want to develop self storage right now, which I think is a shocking number." Now, being in my shoes, I get excited about that because we continue to try to get first downs right now. In fact, we've got two sites that we're putting under contract here hopefully within the next few weeks. Right. So we we actually are like, "Okay, let's keep moving this ball down the field because when we do finally open, we believe we're going to be in a really really good position." Thaddius Campbell: Okay, so let me tell you my thesis here. Couple things. You've had a couple of massive players jump into this space lately. Um, StorageMart obviously, you know, largest privately held uh company owning storage in the United States. They went back and forth with the William Warner Group for a number of years, but with the acquisition of Manhattan Mini Storage have really kind of solidified themselves there. Um, they're making some headway in their third-party management. You know, companies like Go Store It, Madison Capital, they're entering into that third party management. I was just thinking about this the other day. There are now like 10 companies that are in the the 100 plus range of stores that they're third party managing. And so I think that listen that doesn't account for the 50%. That's kind of why I went to 20%. I guess my question back to you would be we obviously covered the discount strategy and ECRI quite a bit. Is that are they facing some blowback there or is the 50% more about just less deliveries, less people actually developing and Chris Berg: it just I think it just doesn't pencil. Right. We talk about the cost of land and we're going to get into this in a moment, but um you had KB Homes, you know, step away from 9,700 land contracts. It just it just doesn't make sense. And when I say that, I mean CNTS right now, right, to go out there and do that. In fact, there was another guy at the Illinois SSA per the notes from Tyson where he said we're pencils down right now in development. Like we're not we're not even looking at that. So again, another reason why we feel good about it at Abernathy Holdings because we're continuing to have pencils up and doing the work. But there's a lot of digging, scrapping, clawing, you know, to find deals that actually make sense. So, um, you kind of led me into where I want to go as well. Let me share with you some, I think, some really good information. We talked about this, uh, probably a couple weeks ago, right? Google search and the demand, what's happening. Some more information from Tyson here. And again, Tyson Huebner, thank you. Yardi Matrix does an incredible job getting information out there. But you and I were looking at, hey, what is uh, June going to show? And I got to see if I can get this to share my screen better. But you know, things were up here as far as overall self-storage search terms. Um, as you can see, but one of the things that Tyson mentioned, which I thought was interesting, and this is really from Joe Margolis, the CEO of Extra Space. He goes, "Look, here's what's happening is you've got a lot more people now that aren't just self storage near me into their phone. It's, hey, I want 10 by 10 self storage in this zip code or 10 x10 self storage here." And so the requests are becoming much more um refined if you will. And I think this is important to understand even with AI because we just saw the big news yesterday where Google stock tanked for a little bit because now you've got ChatGPT going hey we're going to come out with our own search engine. So there's going to be I think some battles going on there and I think you're going to have a point being is a much more educated customer that shows up at your door ready to buy. So, the demand may not have been as robust as we've seen, but to get to your point, one of the things I want to share with people when you asked about the ECRI, and hopefully I can get to the right uh screen here for us, and I'll probably show a couple of them just to to give you the point, but you can see here um we've seen a dramatic increase in, you know, street rates really since December, right? And I think there's a few reasons for that. one, we've seen the demand is up for Google search. It's seasonal, of course, but again, we go back to California and we said, "Hey, we don't want to be on legislators lips." I think guys are going, "Hey, you know what? Let's just start raising these rates now just in case some of this other stuff happens." So, the other good news though, year-over-year, and this graphic is a little bit more difficult maybe to make sense of. Um, but you can see what the good news here, this is 2025, kind of these darker blue FAD. Uh Thaddius Campbell [attribution inferred]: yeah, Chris Berg: you know, rates up April, rates up May. So, a really really good sign from that standpoint. Thaddius Campbell: Yeah. And and I think, you know, I want to kind of I get a little doom and gloom when we're talking about the square foot per capita and about but I want to be very specific. I think storage is in a really strong spot, especially in top 50 MSAs. I think looking at what we've seen over the last 11 years, there's a window there in MSA 51 to 100. Those may be some areas that you're going to see some opportunity over the next 10 years. And going back to to demographic trends, the usage rates of millennials and Gen Z and specifically Gen Z now, as more and more of that age group is coming to an age where they're going to be storing stuff, they're using storage. And to your point about the specific search terms, why are we getting more specific search terms? Because people that are 30 and under are used to going and doing research to figure out what they need on their phone or on their computer and then going and finding it. Which is why you're getting, hey, I need a 10x10 and xzip code as a search instead of self storage near me. Right now, the the I've talked about this before, the number is staggering, right? It was 6% of baby boomers that utilize self-storage as a percentage of the total population of baby boomers. It's 16% for Gen Z and millennials. So, do I think we have a long-term problem in storage? Not even a little bit. I think storage is going to thrive. It's going to continue to be an amazing asset class. If what you and I tend to think is going to happen and we have a recession late 2026 into 27, it's going to be a safe space as an investor, I believe. I'm not a financial person, so don't take my advice and go invest. Full disclaimer here. I'm simply sharing my opinion of the the asset class. That doesn't mean that I'm not going to identify where I think there might be some stress points going on in the asset class. And I think especially with the what I would consider overdevelopment of tertiary facilities, that might be a place where you see some some movement happen. Again, I told you my thesis earlier. I think it's going to be more about more consolidation than anything else. Chris Berg: Yeah, I think you're spot on. I'm trying to find there was a great graphic recently where it showed, you know, home values and obviously what's going on with millennials. So, you had baby boomers that could buy a home back in the day for, let's just say, 100 grand. Right now it's 480 500 grand and it's just it's out of reach for Gen Zers. I think what's an interesting dynamic there and the point you talk about being long self storage is Gen Zers actually use storage more like a garage than in the past. Plus when you've got you know they're going to be renting for a long time. I hate to say it because if you're a Gen Zer you're probably pretty adept in crypto and you're like look at my keer in Bitcoin. like what am I what am I going to go buy a home for when I can just go sit on a couch and buy Bitcoin and let that do what it's going to do? Now, this is not a promote, like you said, this isn't financial advice, but I'm just sharing with you taking you inside the mind of a millennial. Like, why why wouldn't they? Thaddius Campbell: I you mentioned earlier a graph that I saw as well, and I want to just highlight it because it's mind-boggling. in 1985. And I remembered this cuz my parents bought their house they just sold last month in 1979 for $47,000. The median home price in 1985 was $63,000. The median household income was like $21,000. So about a third of the cost of a home. The median income in today is around 80,000 per household. And the median cost of a home is 400, right? So, significantly higher than the income. And you and I I mentioned this last week on the graph, you know, as a median household income, what you're going to be available for, depending on your credit, of course, but what a bank is going to lend you is going to be enough to buy a $311,000 house at a 6% interest rate. Well, the median home price is another 90. It's it's 25. It's 30% higher than that. So, you've priced people out of being able to buy houses. Going back to storage, what does that do? There's more need for it because people don't have the space. And the next thing that I would say that I think is an amazing trend that we've kind of started to touch on, um, especially with D.R. Horton's decision to build smaller house, excuse me, KB Homes building smaller houses. For the last 40 years, house sizes have doubled, right? A a typical house in the 1980s was 1,200,500 square feet max. You're seeing people now buying 2500, 3,000, 3500 ft² houses. We're going to start to see that trend. And and by the way, at the same time that happened, the average number of people in the house declined. Bigger house, less people living in it. Now we're starting to see that trend reverse where you're going to start to see smaller homes with more people living in it. Not bad news for the storage industry. Chris Berg: Well, just to put one more piece in the positive of our thesis here is you've also now compared to in the past got a lot more HOAs and HOAs do not want stuff just straggling around home. So either you're going to put it in storage or you're going to put it somewhere very well placed with inside your home and there's just not enough space. And so again, I think you can write a really strong thesis long term for self storage and why it's a great asset class to be a part of. Um, and I do want to anything else you want to add there because I do want to talk about Thaddius Campbell: No, that's you wrapped it up perfectly. Chris Berg: I want to share something here because we we've been talking about the economy, right? And I and I want to speak to this one big beautiful bill and what again this is going to mean in my opinion for Gen Zers and and to throw out I guess I'll throw this out to you because you mentioned hey 6% and so much you can only finance there. If you look at what's happening right now with our debt and Japan and bricks and things of that nature, I don't think you're going to see this in the next 12 to 18 months, Thad. But let's say 18 to 30 months, because I think you're going to there there's going to be a new Fed right chair in in May of 26. He's going to lower rates. He's obviously going to love Trump. I mean, we're going to see a time where that happens. But what is the 10-year going to do? Because if there's not an appetite for debt, what happens? And I'm just going to say hypothetically here. What happens if all of a sudden you have to raise rates to get enough people to actually buy our debt? But by the way, I've also got to utilize QE to help supplement more of the short-term debt. Like that is just going to be a real challenge. Thaddius Campbell: Explain QE by the way because you slid it in there and and I didn't know what it meant until recently. So, I want you to explain for people who listening may not understand QE when you say it. Chris Berg: It's basically where the Fed uses their balance sheet to go out and buy up the debt. So, it makes it it almost it gives you like a juiced reading of what actually the appetite is for US debt. And so, they're buying it up trying to make it look like there's an appetite. Now, some people are saying like Secretary Bessent and stable coins may be the answer for this, but we don't know. And so, again, it's hypothetical. Even Phil Anderson brought this up in a recent podcast like just you want to start thinking about what if down the road a few years when we get into this real estate cycle the economy starts to go in a different direction. Um we actually have to raise rates but utilize like you ask QE quantitative easing to buy up and and flood more liquidity into the market. You're going to have inflation but this it's just we've never seen it before. So I don't know what it's going to look like. But all I know is it's not going to be any easier to get into real estate if rates are 10, 12, 13%. Thaddius Campbell: No, it it's it's a challenge now at, you know, looking at construction loans in the sevens and and so which is one of the reasons you're going to see some of the slowdown in development. You know, we saw in 2022, 2023 people doing development deals with construction loans in the double digits, but those were projects that they were already deep down the rabbit hole in, right? they they were a million, a million and a half, in many cases two, three million because they'd already bought the land and really didn't have a choice but to go get it built in order to try and get out from under it. You know, now with with the the being able to foresee what the rates are going to be, you you know, if that happens and and certainly the thesis makes sense, you're going to see an even greater slowdown which ultimately hurts the overall economy, right? If for groundup development creates a lot of jobs on multiple levels. It's one of the reasons I love what I do. The idea of going and building a 10 or a $20 million facility and the amount of people that are working that otherwise wouldn't be because of that facility happening. Like think about it. If we go down to 700, 600 self-storage facilities, if an average facility is $10 million and you just lost 600 facilities, think of how much money is not going into the economy and stimulating job growth and opportunity. It's staggering. And and it's not an outlook that I'm looking forward to in any way, shape, or form. Even if I think you and I are agreed that it's likely what we're looking at over the course of the next couple years. Chris Berg: Well, when you look at the unemployment rate in computer science degrees right now that are recently graduated, may maybe they'll end up on the construction site. You know, who who knows? Thaddius Campbell: Hey, listen. I've swung a sledgehammer in my life. You do what you got to do to put money on the table when the times are tight, right? So, one thing I'll say about Americans and and by the way, a plug for why I'm getting into small bay flex so heavily is we go to work, right? We get a bad rap, but when things go sideways and people get laid off, they they get creative. We have a lot of ingenuity in our country and a lot of entrepreneurial spirit and I believe in the American engine and I think we're going to be just fine. It doesn't mean we might not go through some challenges over the next couple years as we try and get there. Chris Berg: So, let's talk to that. I want to share a thesis with people. You can poke holes in our hairs as we go through this. And yet, I just want people to to sort of because we've talked about the the the housing stocks, right? And what that potentially can be as sort of a leading indicator of the economy, but I didn't mean that for tomorrow. What I'm suggesting is, hey, last time this happened, the housing stocks tapped out at 2005. The stock market didn't really crash until around 2007. So, it was 2 years. So, let's just use 2 years again as a time frame. And I want to use that because of this. They just passed this one big beautiful bill, right? I mean, the debt that is going to go onto our uh nation right now because of the one big beautiful bill. Not good from a long-term standpoint, but boy is it going to juice the economy. That's what I think people should be aware of is for the next definitely through November of 2026 the midterms because Trump knows look I've got a very slim chance of holding the house I think they they have it by like three votes now right Chris Berg [attribution inferred]: so the one thing he doesn't want to do if you lose the house you know there's going to be impeachment hearings it becomes a hot mess Chris Berg: he will use every single tool he has Thaddius Campbell: Are you using the Trump hand signals on purpose I just want to make sure that was done purposefully Chris Berg: And I'm glad you caught that. He's going to use every single tool he has. Yeah. Chris Berg [attribution inferred]: Including Scott Bessent to juice this thing as much as he can. Yeah. Chris Berg: Definitely through November 2026. So I say that to be aware that I'm sure you're going to see, you know, QQQ, the ETF there, is going to do really, really well. You're going to see, I think, the stock market go up. Crypto's going like those things. I believe, again, not investment advice, but I think those things you're going to see take place. Everyone's going to be like, "Man, this is amazing." Right? Like look how great this is. Thaddius Campbell: I have an interesting question that's coming up for you as I'm thinking about this, right? I mean, look, the the the hope is from the people behind the one big beautiful bill, Trump and the other people that helped craft it for him, is that the juice to the economy stimulates GDP enough to increase tax revenue to offset what the projected debt is. Right? And we've seen that happen before, by the way, in their defense. There have been times in our country where I can remember during Clinton's area that era they had a big tax cut and we had the dot-com boom and we actually balanced the budget for a year during Clinton's tenure. This the last time it's happened and the only time since World War II, but there's there's reason to believe that that's possible. Whether or not I think it is, I'm I'm going to withhold from saying, but that's their hope. Certainly, that's what they've campaigned for the bill on. My question is, if that doesn't work, are we pushing to this place of something that we've talked about before, which is the need for land leases, right? The need for the United States to start using the massive amount of land that they own to go out to private corporations and say, "Hey, we want you to responsibly go grab the resources off of this land. We're going to charge x amount of dollars." Because I think you and I both know that we could eliminate income taxes. is we could eliminate property taxes. We could eliminate every tax there is in the United States if we chose to go down that road as a country. Chris Berg: So fascinating you bring that up. I hope I still have it here on my phone. Just this morning there was a company that did a public private partnership. I've talked about this before. One way to help squeeze our and leverage our balance sheet. Um but a company just signed a deal with MP Materials just signed a deal with the Pentagon. um where they're going to basically now do a public private partnership around rare rare earth mining and we all know the importance of that when it comes to semiconductors and defense stuff and everything. So you bring up a really good point there. The thing I think you want to be aware of right now that Trump is also doing and I don't want to get in the weeds on it, but there's going to be a lot of deregulation. I mean if you watch Pulte right now on Twitter, he's want to push crypto for mortgages. He's like um what else is he saying? Oh, you're going to be able to use your rent now towards your your mortgage or your credit score or whatnot. So, all these things they're going to try to do to expand the opportunity to put more and more people into housing, into real estate, Thaddius Campbell [attribution inferred]: which sounds great. Chris Berg: And if you know your 18.6 year real estate cycle, you know that, hey, the D-RG again as another precursor to possibly having the land start to get squeezed. The land prices start to go down. We've got a bunch of credit in the system, but now it no longer makes sense because the land's not worth as much. And that's when the house of cards starts to crumble. And so, I want to play a clip for everybody here. Um, and I think he does a really nice job. This is Phil Anderson. If you haven't read his book, um, The Secret Life of Real Estate and Banking, would definitely encourage you to do it. It's fantastic. Um, if you don't mind, what I want to actually do real quick is share with people if I can just to refresh people's memories here. So, this is uh, KB Homes. This is 2005 of July all-time high. Then we know in 2007 you had the stock market crash all time here in September of 2024. It's been going down since. Again, does history repeat itself? Not always, but it definitely rhymes. So, does that mean you could look into let's say the end, which you and I have been talking about, the end of 2026, early 27 where there are some challenges. Might be the case. And I say that because if it does rhyme now, Lennar tops out again. July 2005, just like KB. Here's September 2005. excuse me, September 2024 um tops out and it's been down ever since. I think we're going to see kind of a double top and then it'll probably go down. Again, not investment advice, just a guess. But then I want to play this and I think Phil sort of lays this out and he talks about why housing stocks are such a good predictive indicator of what can be coming um within the overall economy. Thaddius Campbell: Been looking forward to this since you teased me with it earlier. Chris Berg: Uh, all right. Tell me if you can hear that. Phil Anderson (recorded clip): Real estate cycle that the the index that peaks first are US housing stocks. Now, they peaked back in 2005 and they they peaked first back in 1987. They generally peak about two years or a year and a half before the land market, which peaks a little bit before US stocks do. Now if you think about that scientifically which is why I got back which gets me back to this pencil and it drops the law of science says that drops downwards the law of economic rent is all about land prices and where uh prices capitalize. Now if you think about this in a in a just an earnings perspective scientific if you like but um the reason why they peak first at the towards the end of the real estate cycle is because that's the analysts having worked out that because land price has become too expensive the profits of house builders can no longer be sustained in an upward direction. So the market will start pricing in lower earnings because they're having to pay too much for land price. And so that's what you can do. Chris Berg: I want to pause it for a minute, Thad, because I want to remind everybody again, KB just pulled out of 9,700 land contracts because they no longer penciled and went and did stock buybacks. The CEO gets paid to allocate capital very, very effectively to maximize return. So they're basically saying, look, the land no longer makes sense. kind of what Phil's alluding to here. I might as well just go buy my own stock because that's going to make more sense for our shareholders. So, I want people to realize that that and I love how Phil sets this up going, "Hey, the analysts can see it. The land's just now too expensive. So, I got to obviously give them a different price target for these these homebuilder stocks." Phil Anderson (recorded clip): When you understand that land is a third factor of production, which never ceases to amaze me, almost nobody in the United States does this. Now there are plenty of very smart analysts on the stock market in the US. Very smart people and they are quite capable of of suggesting that the housing market the land is now overpriced. And if you have a look at Lennar and Toll and and um D.R. Horton their stocks now they're on a they're not trending up. They are now trending down and they're breaking into new lows. Now the analysts are smart there. They're not they're not dumb people at all. They've worked out that there'll be lower earnings on that. the the brilliance of what you can do when you understand the land market and this is all in my book is that you can put that knowledge within the context of the real estate cycle and if that starts happening after we've already had 13 years of rising land prices it tells you the cycle's coming to the end and that's the noise we got that's what we got when we filtered out all the noise that's what happened in 2005 because that's when the housing stocks peaked last time and this is very clear in the chart you can see at the the highs and lows that they peaked last time in 198 1988 Chris Berg: I think it I I go on and on with Phil. So I I think he's Thaddius Campbell [attribution inferred]: fant Chris Berg: one last thing I want to share is that Thaddius Campbell: Go ahead. Go ahead. Chris Berg: I don't know if you've seen this, but Phil also talks about the other sort of metric you want to keep your eye on to know that we're going into this what he calls the winner's curse or things are starting to really take off and there may be a tipping point is the price of copper. I didn't really get it. Well, copper just hit a new all-time high. I think it was was this week for sure. So again, what does that mean? We don't know. All we're saying is if history at least rhymes, just be paying attention. Thaddius Campbell: We know what we think it means. You know, I think you and I have been very clear on this show and and you know, I was going to say 1989 90 the the savings and loan was the the previous big recession before 2008 in the GFC. Um there's been another 10 of them prior to that going back to the foundation of a central bank in the United States. And so the pattern is there, you know, and and I it's to me if you go read that book and you you really spend time, let me tell you, let me prepare you. You go read that book. Be prepared to be in school mode because it's it's not a fun reading. You know, I've read basic economics. Very different read than what basic economics is. It's it's research book and and but the data is there. And and I believe this and you know, I know you say this too. If you're in real estate in any way, I think that's a fundamental book that you should have in your in your bookcase and have read and and understand. A lot of respect for what Philip J. Anderson put together there. And it's pointing to a thesis that I think you and I generally agree on very much. Chris Berg: Again, I will invite anyone to poke holes at thesis because I'm every day trying to poke holes in it and it's it's a challenge. I mean it is a um I think what's fascinating about it that I want to get your take on this and we can wrap things up is that it's one of those things that once you see it you can't unsee it. Thaddius Campbell: Could not agree more. Once you understand it and once you see the p it's impossible not to see it playing out. It's I could not agree with putting it that way better than you did. Chris Berg: But I don't want to be a lazy thinker. Right? That's why I'm asking people. Hey, if you can poke holes in this, please do because I'm trying. But, you know, you could say, B, you're a lazy thinker. Maybe you're not doing this. So, Thaddius Campbell: I'm reminded of Good Will Hunting in the bar scene where he starts making fun of the guy for quoting out of a book, right? It was kind of the the I can't remember the character's name, but when Matt Damon's making fun of the the Harvard guy because he's quoting some economist, right? Well, let's try not to be lazy thinkers. You're definitely right. Chris Berg: Dude, I'm so sad. I thought you were going to say, "Hey, do you like apples? with a phone number against the wall. Anyway, keep going. I apologize for it. I couldn't couldn't resist that one, though. No, I think we're good there. I just um I invite people to to hey, have a read. See what you can do to poke holes in that thesis. And if you can, you know, reach out to us. We'd love to have you on the show even. Let's talk about it. I just think it's a really um powerful thesis and it's it's interesting. Let's let's definitely put it that way. And again, we'll see how it plays out. You never know, but um I think it's worth your time. That's a Thaddius Campbell: Listen, we talk about this every week. We'd love to get feedback from the audience. Put comments on the LinkedIn page. Reach out reach out to us directly. Our emails are all over the place. We're certainly present on LinkedIn in a way that we're really easy to get a hold of. Um would love to hear feedback and contrarian. God bless. If you disagree with us, we're we're I think you and I are very open-minded people. We're more than happy to listen to data and facts. And look, two people can look at the same facts and come up with a completely different hypothesis. So that's okay. We certainly encourage that. I want to ask Chris Abernathy, what do you have coming up? I know obviously Abernathy Holdings, but the CRE Report, having had an illustrious uh background of of people that have appeared there. We talked about Trojan Storage. I'm still trying to get Lauren Feny to come on my show. She went on yours and I'm I'm feeling a little bit of jealous there. Philip J. Anderson obviously been on there. what's coming up on the CRE Report. Chris Berg: Yeah, you know, thank you for saying that. Go check out YouTube, put in the CRE Report or the commercial real estate report with Chris Berg. You can watch my interview with Philip J. Anderson. I've also got Akhil Patel who's got a great book and he works with Philip J. Anderson. Lauren was fantastic as well. Um, and then we talked recently about the big news coming out of California with CEQA having just major major revisions and people are shocked. I've got a land use attorney that's been in the business for 20 years here in California, went to college in California, has been focused on CEQA for 20 years. He's going to join me. We're going to break down like, okay, what does this really mean as far as housing and the cost of housing here in California? Because I think a lot of people are thinking, hey, if we can just bring some more again, supply and demand and more supply to California, we can start to lower housing uh costs and keep people within California and um obviously improve the uh value of our self-storage assets. Thaddius Campbell: Love it. Keep an eye out for that. Love the guests you have on the CRE Report and the information you bring. I have the stories behind the door podcast. A little different. It's not really so much factual. It's more getting to know people in our industry, but I got a few good ones coming up. Brad Noble, who's a developer, um, also owns an insurance brokerage out of Atlanta. Um, involved in self storage and also Small Bay Flex. So, really excited about that. He's on. I'm going to be live on LinkedIn tomorrow at 11:00 a.m. We'll release later on. A very good friend of mine. And actually interesting, it came up earlier when you were talking about the Sacramento deal that you guys passed on. I just passed on a really good boat and RV opportunity because it's a half a mile down the road from my friend Eric Johnson. Um I actually sold Eric Johnson a fully entitled site down in Ocala, Florida a few years ago. They're probably going to open around Thanksgiving. Don't want to go go, you know, open up something in his backyard. So trying to honor that friendship and that relationship there. Hopefully that's something that catches on in the overall industry. Eric Johnson's going to be on Monday at 11. He's a a Brooklyn kid. uh has an amazing GC firm, also does a little bit of self-storage development as well as running a a really good GC firm. So excited to talk to him and and many more guests coming up. But those two immediately that I'm excited to have on and hopefully folks can can uh join in and and tune in and enjoy. Chris Berg: Then by the way, next week I will be hopefully live from the California Self Storage Association. We got Palmer Luckey speaking there, CEO of Extra Space and some other really great guests. So, we'll kind of give you the lowdown about what's happening there as well. Uh, from Newport, beautiful beach. Thaddius Campbell: I'm looking forward to hosting that. And and I'm actually flying to California right after the self storage report next week. I'll be at Toy Storage Nation. Any of you guys are going to be out there, please come and say hi. I'll be at the Anaheim Hilton on the 18th. Um, and then the following week, I'm going to be in Denver going live from our S3 yearly meeting. So, we we'll have some fun with that one, too. Um, really appreciate everyone who's reached out. a lot of you folks reaching out and talking about the self-storage report and what you're getting from it. We certainly appreciate you folks for supporting us. Follow us on the YouTube page. You can go to the self storage report and and subscribe to the page. And we're going to keep coming on every week like clockwork, 1:00 Eastern time on Thursdays, 10:00 a.m. Pacific time and hopefully sharing some content of value for you folks to to really understand what's going on in this industry that we love. — END OF TRANSCRIPT —