What's ACTUALLY Happening In The Self-Storage Industry? | CA Self-Storage

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: What's ACTUALLY Happening In The Self-Storage Industry? | CA Self-Storage Host: Chris Berg — Abernathey Development Recorded: May 22, 2024 Video: https://www.youtube.com/watch?v=teDQ4ZR_Hxg Key topics: California Self Storage Association conference in Napa; 17 California ballot measures set for November 2024; Stephen Marabo of Storage Pro Management; rising rent-increase complaints to the CSSA; 7 California cities opposing self storage with moratoriums; California's highest-in-nation unemployment rate just above 5%; self storage as a small-business incubator; Amazon drop shipping tenants; the Taxpayer Protection Act and Prop 13; Stephen Levy of CBRE and The Weekly Take; San Francisco office trading at 20 cents on the dollar; AI reviving Silicon Valley; San Francisco as the No. 1 US tech-talent market; two more Fed rate cuts predicted for the year; Belinda Roman of St. Mary's University on common-sense forecasting 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. ————————————————————————————— Chris Berg: …report. I'm your host, Chris Berg. Just wrapped up and it was a phenomenal event, but the California Self Storage Association event here in Napa. So first off, I want to say kudos and thank you to everybody involved with the California Self Storage Association. They put on an incredible, incredible event over the past couple of days. Great networking, but also very, very informative. And so what I want to do today was to share with you some of the highlights that come out of this event that are impacting either the self storage industry as a whole, or even commercial real estate as a whole. Chris Berg: We had a great session early in the morning about some of the important things you want to pay attention to as far as legislatively, things that are taking place potentially in Sacramento, but then also within the entire state of California. You may or may not be aware of this, but according to a person that spoke today, he said there's going to be 17 — 17 ballot measures on the ballot in November 2024 here in California. So there's going to be a huge get out the vote movement. That should be fascinating to watch just in of itself. But there's a couple of those things I want to talk about specifically that he brought up today that are critically, critically important. I wouldn't say even just from a commercial real estate perspective, but really just from your own constitutional rights, right? We all know about taxation without representation, so I'll talk about that in a moment as well. Chris Berg: Then we had a special guest, Stephen Levy. He's with CBRE, he's got a great podcast there. He talked about really the economy as a whole, and then how that ties into different asset classes within commercial real estate. He said a couple things that may make you go, wait a second, say what? If you watch this show, Commercial Real Estate Report, often, you may not be a surprise, but there may be some things that will intrigue you, to say the least. Chris Berg: So let's start with, in the morning, Stephen Marabo spoke. He's with Storage Pro Management. Did a really, really nice job just talking about things that we need to be aware of within the self storage space specifically. I think one of the things that has been so powerful and so great for self storage, it's really kept itself out of, you know, state capitals. It's kept itself off the legislative map. It's just said, hey look, we just want to serve our customers and keep them happy. Things are starting to change. And so I took some pictures of some of the slides, I'll share those with you. One of those is here, where there's been a tremendous increase in complaints to the California Self Storage Association because people are seeing their rent increases, sometimes, you know, quite dramatically, after let's say 3, 6, 9 months. And so people are calling going, wait a second, you know, don't I fall under this statute? You can't raise the rents like that, and this and that. So that is a piece that he said, look guys, this is really, really important that we make sure that we are managing this effectively. Chris Berg: I think part of that ties into what Stephen Levy said from CBRE, is the economy is changing. You know, maybe 12, 24 months ago if you had a rate increase on your self storage site, kind of like, ah, you know, you're just not paying that much attention. But with inflation, I'm sure you've seen delinquencies going up on car loans, credit cards. People are much more just apt to notice what kind of charges are being taken place within their charge cards, credit cards, debit cards, whatever. So that was one piece that Stephen spoke to and said, hey guys, this is important that we manage this, that we take care of this and keep ourselves out of state capitals. Chris Berg: The other thing is that you've got cities now, and I think he named 7 of them, but cities that just are not proponents of self storage. And so he said we've got to really go out there and start to educate city leaders, people on planning commissions, about what makes self storage such a great asset for their town, for their city. So he said make storage in California cities accepted again, was his slide here. But I think what's important for this is that we've got to go out there and share with some of these cities that they're putting moratoriums on self storage, and let them know that we — and one of the reasons why is they go, hey look, you guys don't provide sales taxes, there's not a lot of employment. Chris Berg: Well, one thing I'll share with you, it just came out I believe today or yesterday, the state of California now has got the highest unemployment rate in the country. The highest unemployment rate in the country, just above 5%. So our advocacy, if you will, to cities and local leaders is, look, that's exactly what makes self storage powerful for you. Because maybe in and of itself it doesn't generate a bunch of sales revenue, and we become these incubators for small businesses. We've all seen Amazon drop shipping pick up, and you know, a lot of people right now, because of where the economy is at, because of unemployment, you've got influencers, people starting up small businesses. And that's where a smaller self-storage space can be a perfect incubator for somebody that's, you know, just getting started with their own small business. Maybe they're not ready for a bigger industrial type of lease or something to that effect. So self storage month to month can give them some flexibility to take a risk on themselves and go out and generate more of that sales tax, hopefully employment, for these cities. Chris Berg: So if you know any city leaders, if you're watching this now, you've got some colleagues that are city leaders, please share this with them so they can hopefully just, you know, take and appreciate what we're doing to help some of these small businesses get off the ground and eventually generate more tax revenue, and obviously more employment as well. Chris Berg: One of the big ballot measures that is going to be on the ballot in November here in California was talked about as well, and that is the Taxpayer Protection Act. Very, very important, because what that's going to do is protect Californians, Prop 13, which involves property taxes. And what's really interesting about this — so get out and vote for the Taxpayer Protection Act of California, because what it's going to do is it's going to put the power back in the hands of the people. And what I mean by that specifically is that anytime now the legislative body and the governor pass a tax in California, it then has to go and actually be voted on by the people within that community. So it's the ultimate taxation with representation. So again, that's the Taxpayer Protection Act, very, very important within California, and one of the ballots that will be on the measure here in November. There's some other things about that. We're going to actually get the gentleman that spoke today here, we're going to try to get him on the podcast to visit with you about it and give you a better sort of idea of what this can mean for you, and of course the state of California. Chris Berg: Stephen Levy also spoke. He's with CBRE, he is a big researcher for them. He's got a great podcast called, I believe, The Weekly — The Weekly Take. It is The Weekly Take. He says it's the most downloaded commercial real estate podcast out there. Us being the Commercial Real Estate Report, you know, we'll see, we'll be in some competition with him at one point. But he had some very interesting things to share as well. Chris Berg: I think what jumps out for you, he talked about, hey, if I could go out there — and we've heard this before from several guests here on the show — be like, if I could go out and raise money and invest in San Francisco office space, I would be backing up the trucks. So for many people, if you watch the news and you see what's happening in San Francisco, you're like, wait, what in the world is this guy talking about? But he's got a lot of buddies that are brokers in San Francisco, and things are going on, you know, 20 cents on the dollar in San Francisco right now. And the reason that he is so long San Francisco, obviously CBRE is looking at a bunch of different data points, because the thing that makes me so long in San Francisco is one, the AI piece is really starting to regenerate. I've told you this before, people in Silicon Valley say hey, we're starting to get that vibe back like the early days of Silicon Valley, thanks to what's happening with AI and artificial intelligence. But the second piece for him, he goes, look guys, we're not really in the labor — excuse me, we're not really in the real estate business, we are in the labor and demographics business. That is his purview of how he sees real estate. And I share that with you because he says the thing about San Francisco, the number one place in the country when it comes to tech talent. So he's like, look, if you're going to go in there and invest in San Francisco, I think it's going to be great long term, because it is number one as far as tech talent in the entire nation. Chris Berg: So that was one of the interesting pieces he shared in regards to what's happening within the commercial real estate space. He does believe that the Fed — and again, nobody knows this, he even admitted today some of his prior predictions have gone wrong — but he did say he does believe that the Fed is going to lower rates 2 more times this year. So we'll see if that bears out to be true. Chris Berg: And I just want to see if I've got some other notes here for you, because I was taking notes all day that may be valuable and powerful for you to know, from Stephen. So I think one of the things that was interesting too is he talked about this woman who works at a university in Texas out of San Antonio. Her name is Belinda Roman, she's at St. Mary's University, apparently the number one economic forecaster like in the country, right? So works at a university, and he had a chance to interview her, and he's like, what's your secret sauce when it comes to forecasting? And she said, look, everyone's buried in the numbers. And she goes, I get that, but she's like, I didn't trust, I didn't believe the numbers. So she would go out and just walk around San Antonio and talk to taxi drivers and people in restaurants, and just go and use this thing — these are his words — use this thing called common sense. Which I know sounds foreign maybe for a lot of people, but he's like, look, if you just use your common sense and then you take a look at what's happening across the economy, you're probably going to have a pretty good idea of where things are headed. Chris Berg: So just want to keep that, plant that seed with you. I think it's important as we continue to look at opportunities and deals, just use some common sense. Chris Berg: But they also talked about like the people that have the most success long term within commercial real estate. He kept talking about, look, when there's blood in the streets, as Warren Buffett says, that's when you want to be investing. And he said, if I were you right now, I would want to be doing deals, I would want to be investing right now if I'm in the commercial real estate report, because it's going to pay huge, huge dividends down the road, 3, 5, 10 years and beyond. Chris Berg: So those are a few things that jumped out to me. I know that there's more. We'll probably have Stephen on the podcast here hopefully in the near future, give you a chance to break this down in a greater format. But again, I want to say thank you so much to the California Self Storage Association. They put on a great, great event here for a couple days in Napa. We'll continue to keep you abreast of what's happening within the commercial real estate report. We're here today as always to help you go out there and build generational wealth in real estate. — END OF TRANSCRIPT —