Why Home Builders Make Me LONG Self-Storage

THE SELF STORAGE REPORT — EPISODE TRANSCRIPT Episode: Why Home Builders Make Me LONG Self-Storage Host: Chris Berg — Abernathey Development Recorded: July 24, 2025 (published July 26, 2025) Video: https://www.youtube.com/watch?v=heqZi4stNoU Key topics: CSSA Newport Beach roundtable and CEO pushback on overbuilding; Michael Schwarz of Smart Stop and $500 million of Maple Bonds at 3.85%; D.R. Horton earnings call on shrinking floor plans and 1,956 average square feet; Lennar, Meritage and Toll Brothers building smaller; only ~560 self-storage facilities under construction vs 2,500 opened in 2 years; Upland, California 10x10 rates from $153 to $235; Punta Gorda, Florida rates back to $180; Crow Holdings down from 85 deals in 9 years to 4 in 2; Steve Ross feasibility mix shifting to boat and RV; Trojan Storage's 10-year California entitlement slog from 2016; Hobby Lobby's Maryland lawsuit over whether self-storage is retail; Track IQ named data partner with Noah Star joining monthly; millennials and Gen Z as the biggest storage users 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: Welcome to the Self Storage Report. I'm your host, Chris Berg, otherwise known as your AI storage guy. Right, that you Thaddius Campbell: I love it. I love I haven't stopped. That goes over and over my head ever since I first heard it. Chris Berg [attribution inferred]: AI storage guy. Your AI storage guy. We'll see how this whole thing plays out. Also do land acquisition with Abernathy Holdings. We're looking for some great dirt in the great state of California. Joining me today, my co-host, the one and only Rad Thad. That's everyone's got to call you Rad Thad, man. Thaddius Campbell with S3 Partners, obviously the co-host here, hosts some other uh podcasts as well. Uh Thaddius Campbell, did you go to prep school, bro? Thaddius Campbell: I You know what? It's funny you say that. Shout out to Eagle Brook in St. George's from 6th grade through 12th grade. Chris Berg: Wait, did you you really went to prep school? Thaddius Campbell: I really went to boarding school, my friend. I I will say as an addendum that I was a a day student at boarding school. I was that guy. I was there on an academic scholarship. I was not there because of any other reason, but yes, I am a product of boarding school. Chris Berg [attribution inferred]: I mean, you had to like what I I was thinking this morning as I you know, I have an interview. I'm like, Thaddius, that is like just such a great right now. You know what? From now on, will you do the podcast with like just a smoking pipe and just Thaddius Campbell [attribution inferred]: glasses off? That's great. Chris Berg [attribution inferred]: No, you need you need the glasses and like a bunch of books around you. Just Thaddius Campbell: Oh, I love the storage report. That's great. You just made my day. Made me making me laugh right off from the for the jump. Chris, you weren't here last week and we're going to talk a bunch about that because you were at CSSA in Newport Beach. I can't even begin to tell you how jealous I am that I came to to California like right after the event ended. And if I'd known about it, I'd have been there with you. But last week, we made the announcement and and now, you know, fully on board. Really happy to welcome as our data partner the folks at Track IQ. Noah Star is gonna be appearing on the show uh at least once a month. So, we're very excited. And he'll make his first appearance on the show in 2 weeks, the first Thursday in August. God, is it crazy? I almost said May. I feel like we just started this year, right? It's going to be August in another week or so. But really excited. I know. I I've gotten a chance to It seems like every single person I've seen since last week was at the CSSA show. Um, I obviously can't say anything about it because I wasn't there, but really looking forward to what you heard there and and what came out of that show. Chris, Chris Berg: I can't wait to share. I'm going to tell you the number one thing I learned last week at CSSA, which I think is going to surprise you. So, I'll invite you to guess what that is here in just a moment. Also, I'm going to share with you a great thesis on why Thaddius and I are long self storage. Some really, I think, incredible opportunities over the next 5 to 10 years there. You've got a lawsuit you want to talk about. You're going to tie in some feasibility studies and much much more. So I want to show you I mean the CSSA event as always it is an epic event. Great people are there. You got top CEOs doing roundtables. I mean really really well-known people in the industry. So there's a lot to learn but there's one thing that really stood out. So what do you think is the number one thing I learned at CSSA last week? Thaddius Campbell: I I mean you've got me for a loop. I mean, the thing that I I keep hearing over and over again is the significant downturn in in groundup development. Chris Berg: I think the number one thing I learned is just how much they hate developers. Thaddius Campbell: Oh, that's great. Chris Berg: No, I say that obviously in jest, but there was a great robust conversation with top CEOs from the industry. I mean, CEO of Extra Space, CEO of Smart Stop, um, William Warren Group, Caster Group. So top CEOs having this conversation and obviously there was a big piece about the ECRI and you the pricing and what's happening right now and is how dynamic it is in the space and Michael Schwarz. Do you know Michael Schwarz from Smart Stop? Thaddius Campbell: Not actually. Chris Berg: He's fantastic. I really really like him. So this big dialogue is going on and things were I wouldn't say they're chippy but there was a little bit of tension in the room about ECRI and you know pricing and where things are at. Michael Schwarz is like look you know what I think you all are you know on to something here. I appreciate it but I just disagree. I think we just overbuilt. We killed the golden goose. We put too much supply online and that's the problem. And I think he summed it up really, really succinctly, really simply, really easily. So again, not that they hate development, but you can tell it's kind of like, hey guys, can we just be a little bit smarter about this so I can keep my pricing where I want it? Thaddius Campbell: I think that's fascinating. You know, I had Maurice Pagota of the Pagodos. We've talked the Pagota Companies on the my podcast Stories Behind the Door a couple weeks ago and blew my mind. He was developing in the 80s and 90s in Michigan. He's like, "Look, if there was 2 square foot per capita, I wouldn't develop in the market." I mean, think about that right now. You literally would not be able to build a self-storage facility in any top 50 MSA if you were looking for 2, any top 100 probably if you're looking for 2 square foot or lower and you have any type of a demographic you know base as far as what you wanted for population in that 3M radius. So this idea that, you know, we we're overbuilt is, you know, we're looking at sites now and we'll see a site with 10, 11, 12 in Florida or some other places and be like, can we make a can we make an argument to do it anyway? You know, so yeah, I mean, I think a massive problem one, I think we're going to see a a fix present itself over the next couple years in ter I I know we've talked about this. I've been hanging around Steve Ross. Shameless plug for the Stories Behind the Door podcast. He'll be my guest tomorrow. I'm going to air that on LinkedIn live at noon Eastern time. Um, Steve Ross has been doing feasibility studies, excuse me, 1:00 Eastern time. Um, Steve Ross has been doing feasibility studies since the '90s. He was a vice president extra space when they had 9 stores. Think about that for a second, right? He was a vice president extra space when they had 9 facilities. And he started doing in-house feasibilities back then. Obviously been on his own for about 20 years doing feasibilities. In his career, north of 85% of the feasibilities he would do have been self-storage. He said in the last year, it's been less than 25%. He is doing so much more boat and RV. He's doing a lot of flex, you know, shameless plug for the small bay flex side, which we're diving into at S3 partners. U but less than 25% of the feasibilities he's performing are in storage. You know, very reflective. I I touched last week while you were at the CSSA event on Thursday. Um, Radius Plus has a uh, you know, they give data on current construction. There's only like 560 self-storage facilities under construction right now. 12 12 month cycle to finish a ground up, right? So figure there's not going to be more than those 568 actually open their doors in the next 12 months. and offset that with the last two years where there's been over 2500 facilities open their doors. So, you know, figure 1,250 to 1,300 per year that have opened each of the last two years, by the way, records. Now, we're going to be down in the 500s, 600. I mean, a really drastic shift in in groundup construction. Chris Berg: Yeah. Yeah. So, I think there there's really some intriguing things and that's why I said a moment ago, too, there's a thesis I want to share with you and you and I have talked a little bit about why I think it's it is okay to be long self storage and there's really some good tailwinds for the self-storage industry that are playing out in housing and whatnot. I think that's why it's been such a challenge. You had so much building take place. Nobody's moving because there's 3% rates. So, there's just not a lot of demand, if you will. So, with that being said, I think the other couple things that were really intriguing from last week at the CSSA as I spoke to a couple of really prominent brokers, one of them said to me that he goes he goes he's been doing this now for I think 20 24 years. He's like, "This is the worst it's been in 20 years cuz I've never seen it worse in 20 years." So, that was one comment from a gentleman who's been in the business for a long time. Another comment from a long time, I mean more than probably 20, 25 years in the business said, "You know the one thing about the the great financial crisis, it was like we fell off a cliff. You knew it. You fell off a cliff. It was ugly. You just kind of had to deal with it." He goes, "Right now, I feel like I'm being drugged through broken glass. Like, it's just so painful. It's been taking so long." And I was like, "Oh, so it's not good." He's like, "It's terrible. This he's like this is it's been just such a challenge." So, I thought that was really interesting to hear. Now again the positive you see sales are up in Q1 of 2025. Um I think you and I have seen that the rates have bottomed out probably Q4 of 24 but also like Joe Margolis from Extra Space said last week look thing about storage it goes down really really slow and it's going to go back up really really slow. So don't expect this you know huge dynamic change in rates. Although I will say my team and I were looking at a site in Upland, California this week, probably a year ago, give or take, you know, a month or two, rates were about buck 50, buck 53 for a 10 x 10. Today, this month, July 2025, what would you guess the rate was at for that same 10 x10 Thaddius Campbell: in California? Chris Berg: In Upland, California, 153 about a year, 14 months ago, Thaddius Campbell: 210 Chris Berg [attribution inferred]: 235. Wow. Two. I mean, that to me is a very dramatic uptick in a rate, right? Thaddius Campbell: I I was thinking about that actually. We're looking at a project in Punta Gorda, Florida, which got put under contract or the land was bought a couple years ago, and the rates were strongly in the twos. Dropped all the way to 120. I just checked it a week ago. It's back up to 180. I mean, so we're seeing some of that recovery definitely. And by the way, that Punta Gorda market um the saturation level is is not low right now. Florida's really hard because you have so many people that are there but don't really claim residents there in a lot of cases. So it's sometimes hard to really, you know, frame what that saturation number looks like because obviously they base it on the people who are actual residents. They don't necessarily account for all the the homes of people that are are going down for the winter. Um, that being said, we're starting to see in some of markets where some of that, especially markets that that repressed greatly. Um, and and I and I think this goes to a deeper conversation about the pricing models and how the algorithms go to pricing. I was hearing this as I've been at the S3 meetings all week and exposed to some of the the highlevel people in our industry. There's very clear-cut points in the occupancy level of a facility where the pricing model will change dramatically. If you go from 92% to 88% um you know big John Sudarth who's with Buchanan Street Partners now was uh a member of the StorQuest team the William Warren group for many many years um he he was talking about this like the difference between 92% at 92% occupancy you are able to demand the price you want at 88% occupancy you're chasing rate and we've seen that over the last couple years. It doesn't seem like a huge difference in occupancy, but postcoid as we came down from those mid90s occupancies and and got into the high 80s again, the algorithms really changed what what management were doing to drive occupancy and and it repressed rates dramatically in a lot of markets, which Chris Berg: I think makes sense why we're seeing such a pullback in groundup development now because you can't you can't model a proforma. Thaddius Campbell [attribution inferred]: You you can't. Chris Berg: But what's really fascinating, I want to dive in a little more of the weeds here in this this site in Upland, is that, you know, we were really looking at it before I was part of the team, they were really looking at, I would say 3 to 4 years ago. And so we had public underwriting and they underwrote it at 230, which looked good, sounded good, made sense at the time, but then all of a sudden, you go back, like I said, 12 to 18 months ago, and you're at 150. You're like, man, I would have underwritten 230 like I'm underwater and done. It did sell. It did transact recently, fairly recently. A lot of people in the business, insiders were like, "Man, I think and I I don't want to call anybody out, but some people maybe had suggested that somebody had overpaid for it." Well, now you look at it and go and they might end up looking like geniuses, right? Hey, now it's 230 in July 2025. I don't know what they underwroed at inside their own team, but they might come back and be like, see, look, see how, you know, prescient we were on where things were going at this particular site. So I share all that because I think it's really fascinating to try to underwrite developments when really that, you know, you're not going up for another 4 to 5 years, maybe even more in California. Thaddius Campbell: So this makes me think of something that, you know, we've talked about the thesis of consolidation and self-storage and how I I truly believe it's going to get more and more consolidated very rapidly. Now, and you talk about that site, someone buys a site um and everyone thinks they bought it overpriced. The question is what money did they use to buy it, right? And this is why I think we're going to see a consolidation. If public storage or U-Haul or Extra Space or Cube, some of the really large private equity groups, if they go buy a piece of land and they're using their own money and there's no interest on that money, buying that land, very different prospect than some of the merchant developers that go and raise LP money and they've got a eight pref or a 10 pref to their LPS. Okay, if I go buy a piece of land for $2 million and I got to sit on it for 4 years, it's costing me 200 grand a year in interest. All of a sudden, you know, 4 years later, I'm 2.8 million into that land. It's a very different feeling than if some of those larger operators bought it themselves and and you know, like they're using money that they have sitting there. There's not a pref rolling up. So it one of the reasons that I think right now you're going to see the big boys be able to do deals that other people can't Chris Berg: agree with you and yet you got to think about if you're a public company right like I've got to make sure I'm getting the right FFO per share. So I mean that's one of the things where you've got to be a great capital allocator where you can't just go and Thaddius Campbell [attribution inferred]: overpay for dirt and think Chris Berg [attribution inferred]: 100%. So I mean Thaddius Campbell [attribution inferred]: yeah they still want to show Chris Berg: strategies there that you got to be you know thinking about and concerned about but that brings me to a really important point again to go back to CSSA where um person there from Talonvest talked about now they're doing some bridgetobridge loans. to tell just a bridge loan. It's a bridgeto bridge. And then Michael Schwarz from Smartstop stepped up and said, you know, I don't know if you know, but he just took Smart Stop public. And so with that, what he was able to do is he went out and got $500 million and he called them Maple Bonds at like 3.85%. And like the CEO of William Warren Group said, "Hey, if Mike can go play this game at 3.85, like I can't play the same game." And then Mike was like, "Did I just hear bridge to bridge? I might get in the lending business at 3.85. 85. But I mean that that's a lot of capital, right? At 3.85. Thaddius Campbell: It it it goes to a a thesis in in my former job at Safe Storage USA. We were going out of our minds watching transactions in storage in the five caps where our access to capital was at a fixed 6 and a half. How can we buy something at such negative leverage? Well, now you got Smart Stop with $500 million at three point. Of course, they could pay a five and a half cap. they've got a two bip spread on their their purchase price, right? So, explains a lot and and again concrete that theory that we've talked about that, you know, the big boys are are are going to be able to consolidate that much quicker. Chris Berg: Yes. Um, one other thing just to speak to what you're saying as far as the decrease and what's going on just as far as activity. Another great guest was part of the capital markets round table and she talked about how Crow Holdings over the last it was 9 years had done roughly like 85 deals, right? But in the last two years they've done just 4. So I want to presence that for 7 years they were averaging you know 10 deals a year kind of clipping along and then the last two it's been four. They've averaged 2 a year which I think is a speaks volumes to what you're suggesting around feasibilities. what we're saying about hey there's going to be a dramatic decrease in development taking place over the next few years which again I think bodes well for people that just keep kind of slogging along trying to you know dig in some dirt which is exactly what we're doing is just every day and going hey look we know it's going to be a slog for a little bit but we're we're trying to get much more focused like a rifle rather than a shotgun and go hey this is a piece of dirt that we think we can translate into a really really um valuable asset. Thaddius Campbell: Yeah, I think that you're you're on point completely. And you know, I think we're coming to this point in this we've talked about the real estate cycle a ton and and hard not to keep talking about it, but you know, we're coming to a place where there's going to be some type of a, you know, to the point of Crow Holdings going from 8 to 10 a year to 4 with the amount of of money that they have are still able to o only able to I'm having a hard time talking. I'll blame it on the thin air. I'm sitting in Colorado just I'm sitting at an airport in Colorado in case you wondered why I'm not in my house with the little green fake plant sitting behind me. I'm at S3 Partners yearly meeting. So I'm at Centennial Airport and the backdrop was just too cool not to show. But going back to my point, somebody with that much money and they're only able to deploy, you know, 20% of what they've been deploying year-over-year. Are we coming to this point in the process? and and I talked about, you know, even though maybe a smart stop is able to buy at a positive spread, we've seen a lot of trans I was talking to Barry Sherman and and there was a transaction that a friend of his did lately sold a self-storage facility in the high three caps like in in 2025 like like there's got to be a a correction here at some point. I think we're speeding towards that in a way that a lot of this data that we're starting to see, I know you've shown the housing market stocks lately um and how that historical dip is starting to take off, you know, but one of the precursors of an economic downturn always is when people start banking on growth of future value to buy something as opposed to the positive cash flow that it might create. It it tends to be a precursor that we're late in the growth trend and and we're headed to a downturn in the economy. you know, hate to say that and we've been saying that for weeks now, but there there's so much data that I'm hearing that starts to make perfect sense as you start to look at it through the lens of an 18.6 year real estate cycle. Chris Berg: By the way, can you just do every show from that same location? I mean, that background is like, is that is that a great Thaddius Campbell: I don't know if Gary's willing to put me up in a hotel room every week for the rest of the year, but I I was I have there hasn't been a plane go by in a second, but we're at a private airport. You know, people don't know I work with partners, which is Barry Sherman, but Barry also is a principal in business aviation group, builds hangers and FBO's fixed base of operation. I learned that new today. Um, you know, basically private airports around the country. So, kind of cool to get to go hang out at a private airport. Chris Berg: 2 more things I want to share and I want to jump into this thesis around why people should be long self-storage is is one, I think, also to speak to Crow Holdings as you mentioned. You have one point of view on it. I think another perspective is just to shows how disciplined they are as investors, right? Hey, if it's not meeting a certain IRR, you know, we're not going to pull the trigger on this deal because we got to make sure that we're going to give ourselves the correct margin of safety to get the right returns for our investors. Secondly, and and I we probably should have done this earlier. You and I were having such great kind of back and forth. I do want to give a big shout out uh to Toy Storage Nation to you for helping me get there and Detroit and Amy Bicks. I think they just put on a fantastic event and so I want to give you a chance just to comment on that cuz you spoke there, had a chance to talk about we were doing small bay flex and I just thought it was a really really well done event. Thaddius Campbell: First of all, we and and I'm I'm a jerk and I've admitted this to Chris. I told Chris it started at 10:00 a.m. and it started at 8:00 a.m. and at 10:00 a.m. we were on the road going to do a site visit at a boat. I I apologize for that live on air. mea culpa, um we were at this this boat and RV facility in Corona, California. $995 for an 85 ft drive-thru canopied RV storage spot. I I think a 45 foot was like $495. So, listen, there's some locations around the country where if you can get a piece of dirt for boat and RV storage, um you know, really really strong returns. Of course, the challenge of of boat and RV storage is there is not the data available that there is in self storage, which is why I think that the events that that Amy and Troy Bixs are hosting for Toy Storage Nation are so important. You have to be able to go find somebody who's been there and done that. Hey, they've built Canopy in that area of the country because every every area is different, right? Your site work's going to be different depending on the dirt you're building on. And to be able to go in that room and have people there that have actually been building boat and RV for 15, 20 years and be able to connect with them, to be able to pick their brain and understand they do a fantastic job of bringing people together. And I think right now, going back to what I said with Steve Ross, right, uh he's over 50% of his feasibility studies he's doing right now are boat and RV storage, which is is, you know, really hard to believe for me who got into the industry in 2021 when self-storage was booming and Steve Ross was doing like 99% of his feasibilities on self-storage because you could throw a dart at the map and very likely figure out a way to pencil a self-storage project there. Um, you know, a a big shift in boat RV is helping it's helping keep some people very much afloat. Chris Berg: All right, I want to jump into our thesis here. Thaddius Campbell: Before you do that, I don't mean to interject with you. And when Chris and I talk privately, I just wanted everyone to to know one of the things he says to me all the time is, let me finish because I'm horrible at interrupting, but I want to talk about the dinner we had at Toy Storage Nation for a second if you don't mind. Wait, yeah, get rid of your screen share for a second. I just want to say thank you. Chris and I went to dinner and I'm gonna explain this to people and and Chris is authentically Christian which I love. You guys that follow me on LinkedIn know I talk about it a lot. Um and we had a dinner and and I want to encourage you folks out there based on on what we did. We spent the dinner talking and getting to know each other. But we were talking about what's really going on in our lives and we were pulling up scripture throughout dinner and going into the Bible to really talk about some of these challenges that we're facing in our life and you know recognizing that the answer is in the Bible. It's there. Like if if you want to find an answer, go read scripture. You're going to find that answer. Now I get it. That's not everyone's cup of tea. Okay? But for those of you guys who are out there, I just wanted to say thank you to Chris and I I wanted to do it live while we're on the the uh self-storage report. Um because that's listen, I'm 51 years old. A lot of people go through midlife crisis. We as men, especially born in the the time we were born, um and we talked about this in our dinner. We didn't always get a lot of leadership on how to lead a family, how to be a husband, how to be a father. We didn't get a lot of training on how to do that from our parents. And so to sit down and spend 2 1/2 to 3 hours at dinner with you enjoying a great meal admittedly. Um, but amazing company. Just wanted to say how grateful I am to you that we were able to have such a such an important conversation. Chris Berg: Well, thank you, man. And I appreciate even bringing up here on the show and just to share that, you know, it's just there's been a lot going on in my life as of late and the the Lord's really put on my heart about, you know, what's going on with man and you look at especially young men in our society today and there's some real challenges out there that this probably isn't the time to talk about but we will. But it was really nice to, you know, with you, we had a really authentic, just great conversation earlier that day, even at CSSA. Um, don't want to call anybody out, but this gentleman and I just had a great like, hey, what's going on in your marriage? What's going on with your family? What are the challenges you're dealing with? And it's just such a rare thing because most men are trying to, you know, do the whole ego thing and whatnot. So, it was nice to just you and I kind of shed that away and go, "Hey, here's here's what's going on in life." There's some really good things, but there's also some really challenging things. And uh to go to the word about that was just awesome. So, thank you, my friend. Thaddius Campbell: Uh thank you. And I'm going to let you talk now for a while without you having to say let me finish. Chris Berg: All right. So, I want to get into this and you mentioned about the the homebuilders. Uh so, D.R. Horton uh had their earnings call. I think it was Tuesday. Um, and they actually had a big jump that so coming out, you know, Wednesday out of the gates, they had a big jump in their stock price, which kind of surprising if you actually listen to the call, there wasn't anything like, oh my gosh, 2026 is going to be amazing. In fact, you're going to hear a little bit more why in a moment. But to go back to your 18.6 year real estate cycle, we talked about this before. Typically, what you're going to see in the housing stocks is they're going to peak, which they did in September of 2000. I I'm going to say 2024. We'll see if that bears out to be true or not. Then they drop off pretty dramatically, but then there's like a second kind of runup where they try to hit another high. They don't get there and then it starts to fall off. And then with that second time, which I don't know if we're there yet, but that second time is when you know like, okay, the land prices are starting to get to go down, which they talked about within this call a little bit. And now you can see the economy starting to have many more cracks than maybe we anticipated. We'll talk more about this in some other calls, but I do want to play this for you because everything I'm sharing here ties into this thesis around why I'm very very bullish on self-storage. A couple things is one, millennials right now are the biggest user of self-storage. And millennials have got a long time to build the relationship with self-storage and a long time to have more disposable income to go buy their toys that they're going to have to store. And the reason I say have to store is largely because of what I'm you're going to hear in this clip and some of the data I'm going to share with you. So, um, let's listen to this clip and then we can discuss your thoughts on the thesis because there, as we all know, many millennials just cannot afford a home these days. So, here's what a large percentage of these major home builders are doing to try to solve that problem, if you will, for themselves and obviously for their customer. Analyst, D.R. Horton earnings call clip [attribution inferred]: What What about um efforts to drive, you know, greater affordability such as smaller lot sizes or smaller floor plans? any initiatives on that front? D.R. Horton executive, earnings call clip [attribution inferred]: I think I think both of those uh Alex, you can look at our uh average square footage and its declined consistently uh over really the last 24 months. I would expect that to continue some uh and you know the key to affordability in this country is to provide uh a smaller home site uh with a a smaller home that meets the uh uh the ability of our buyers to uh close on our home and meets a monthly payment that fits what they're looking for. Uh we just need a little extra help from local governments to allow us to achieve that uh really across across the US. But that's an opportunity that we we continue to explore every day. D.R. Horton executive, earnings call clip [attribution inferred]: Our average square footage on homes closed was 1,956, which was down 1% from a year ago, which has been just a very gradual decline. Um, but we're down in the last five years a high single digit percentage on our average square footage. So, we expect that just gradual trend of the average shrinking to continue. Chris Berg: Expecting to continue high single digits decline in square footage over the last five years. Look, doesn't take a rocket scientist to figure out what they're saying, right? So, your thoughts on that, Thad? Thaddius Campbell: I I think that, you know, you put out a an amazing report that you send out, a newsletter that you send out all the time, and I actually read through it. I will admit I read Chris's newsletter as I was traveling around Colorado. This is the D.R. Horton is not the only home builder that's doing this. And and in fact, I think there's a a newer home builder coming into the the section where they're targeting like 900 to 1,000 square foot houses. It's really the only option, right? What's Samzel's wall say? What did it always say? Supply and demand, right? There is a demand for housing. There is not a supply of available housing that people can afford to buy. We talked a few weeks ago about the median income in the US versus the price point of the homebuilders and there's like a $200,000 difference in the average price point of the big home builders versus the median income of the US. Not surprising to see that they're starting to really adjust and that where the demand is and the price point that the demand can afford, they're going to start to really start to target supply to get to that place. Chris Berg: First off, thank you for reading the newsletter. I appreciate that. If you want to go and check it out, we're also posting this typically on LinkedIn. So you can follow me on LinkedIn to get this what I would say is really great information because I think the thesis is stronger. This is Washington Post. Less money, less house. You can see here from the National Association of Homebuilders, the decline since 2015 that's taking place. And obviously the thesis then for you and I being in storage is, hey, people aren't going to stop buying things. Like they're they just want to get in a house that's going to be smaller. And we've talked about this before where millennials compared to boomers. Like boomers go to their storage site maybe once or twice a year. Millennials use this thing like an extra garage. And so I think it's going to really bode well as you got smaller homes. Millennials are going to soon have more disposable income because they're buying Bitcoin. Just a joke. Most more disposable income and they're going to go out and buy stuff and they're going to have a place that they're going to need to store that. And so you can see the trend here as Thad just mentioned D.R. Horton, Lennar, Meritage Homes, Toll Brothers, um, all looking at building smaller homes because that's the only way they're going to continue to sell their product. How do I get um, and and do what they need to do to obviously make their shareholders happy? So, again, that's the thesis there is smaller footprint for the home, more stuff they're going to need to store it. That's going to bode well for demand, especially right now when you've got, like we just talked about for the last 20 minutes, less supply coming online. Um, I think you're going to see those prices start to go up as far as rates. Thaddius Campbell: Yeah. And I agree with you and and think that, you know, it's been a long time coming. I used to always laugh. People would complain about the price of homes and I I would look at like if you look at the housing developments that were built in the 1950s and what the houses looked like, it was an 800 foot house with a with a thin kitchen, a living room, 2 bedroom, small bathroom, right? One bathroom. There could be 4 kids living in that house, right? And and that's what the house was. And you know, as you went through the 80s into the '90s, especially the early as in the 2000s, you know, the the McMansions became the thing. And so, yeah, you were paying a higher percentage of your income for the house, but you were paying for a 2,400 or a 2,800 foot house instead of an 800 ft house. So, it made sense that you were paying a higher percentage. What was interesting is we saw a decline in the average person per home over that time, too. We we got spoiled a little bit, right? we were living in bigger spaces and having more space to each person and it's like anything else there there's always going to come a time where the the role has to turn and and you know now we're seeing this shared by the homebuilders that you know expect to see a continued gradual reduction in the size of the houses that are being built there's no other way to get to an affordable price and you know unless the Fed goes and makes the Fed rate zero again which I don't foresee happening anytime in the near future quite frankly Frankly, I hope it doesn't happen again because the long-term negative ramifications honestly can be way worse than um you know the short-term improvements. To your point earlier about self-storage being a long-term play, what happens to self storage with millennials and Gen Z who are going to very quickly outpace millennials as the biggest user as they come into the fold. um you know as the whole generation uh Gen Z gets to adulthood and starts using self-storage if they're living in 900 to 1,500 foot houses instead of 1500 or 2500 foot houses it only makes the the long-term prognosis for self storage that much better because there's one thing we really understand after a couple hundred years of the United States people like their things they like to have stuff Chris Berg [attribution inferred]: very true I mean one again not to get too outside the box, but I just want to throw this out there is that does there come a time where people don't need garages? And what I mean is we know the autonomous thing is coming, right? So you're going to basically just, hey, I need my Tesla to show up. Bada bing, bada boom, it shows up. So that might be a way to help mitigate some of that. Right now you don't need a garage. You go and use that as part of your living space and that may help affordability as well. So Thaddius Campbell: listen, on top of being able to call your car, it's a price thing for the homebuilders. If I don't need that extra couple square feet of land to build the garage, even though the garage tends to be a little cheaper per square foot to build, look, if I can save the build cost and I can save the land cost and build maybe 2 or 3 extra houses per development cuz I don't need that spot for the garage in the house. Yeah, of course, that's only going to increase. And of course, we know HOAs are becoming much more common, you know, where you're having preclusions on keeping stuff on your site. So, it there's no reason to feel like long-term self storage isn't in a great place. I want to go back to something you said earlier about one of the brokers saying they feel like they're being dragged through the the glass as opposed to the precipitous cliff, which I can understand. It's more like a prolonged negative than it is a a sharp negative. But here's the thing. All in all, self storage is still doing pretty good relative to what it could be, what a lot of other industries are doing, right? Like if you're going to go through a prolonged period of pain, I think you'd rather go through it in self-storage. I'm fascinated by this fact. We still have not seen any fire sales of any really big a little bit on the development site side. Some guys that bought pieces of land a couple years ago where we're starting to see those properties come on the on the market for significantly lower cost. But as far as self storage that's actually been built, development projects that we might look at and say, "Man, that maybe shouldn't have been." We haven't seen them being sold at fire sale prices yet. Chris Berg: Well, we haven't. And again, I just want to remind everybody that that was part of the CSSA conversation. When I heard bridgeto bridge loan, I was like, "Okay, some people are starting to feel the pain." And that and that's exactly where Michael Schwarz is like, "That's where I got 500 million at 3.85. I see there's going to be opportunity coming." and he's like, I would rather be prepared today for that opportunity than having to go trying to find capital to deploy when it's upon us. So, I think that's going to be intriguing. And look, since you and I talk about the real estate cycle, I know you mentioned we're probably not going to see 0% rates anytime soon. Just want to remind everybody today is a day Trump is at the Federal Reserve. You know, he's in Powell's ear. The first term of Trump, if you remember, he wanted negative rates. I'm not saying we're going there. All I'm saying is that the next person that takes over in May is going to be very dovish. May not be zero. may not be negative, but it it it's definitely is not going to be three or four. I can tell you that 100%. Thaddius Campbell: We're going to have to watch this one. We're a little bit on opposing sides of this view. It'll be interesting to see how this plays out, which Chris Berg: I think that's going to be part of the catalyst that that everyone's going to flood in. And as you know, in the real estate cycle, when everybody's in, that's when you want to be like, okay, I'm going to just gladly step out of the boat, realign some of my assets here, and uh get ready to deploy some capital. Thaddius Campbell: So, thank you, man, so much for having such great information. I I your your preparation and your in-depth look at what's going on is unparalleled, which is why we call him the AI storage guy, cuz he's utilizing the tools available to keep himself informed, which is awesome, Chris Berg: bro. This is incredible how you work. First off, thank you for Thaddius Campbell: How well did I just do that? I just This was not a planned segue. Not planned. We do not have a rundown. We don't have a production script. We'd pretty well do this off the cuff. I did that about as well as you could. I'm going to pat myself. If my arm could reach behind me, I'd pat myself on the back. Chris Berg: You I'm I'm giving you a virtual pat on the back. And you absolutely crush that. You I've had this been sitting on my screen now for the last couple minutes because I wanted to bring this up and then you just went, "Yeah, you're the AI storage guy." I'm like, "Oh, that was fun. Let's go." So, Thaddius Campbell: love it. Love it. Chris Berg: What I didn't want to bring up and I wanted Thaddius Campbell [attribution inferred]: turned bright red. Chris Berg: I wanted to share this with you is that as I was digging for dirt, I found a site that Trojan Storage is doing in a really great area. It's going to be a great asset. Thaddius Campbell: Shocking. Trojan Storage, Chris Berg: dude, they've got some great assets. Thaddius Campbell [attribution inferred]: Brett Henry and Lauren Feny, their acquisitions head. Chris Berg: Yes. But to the point where I was like, I want to find out like what it really took to get this asset online, like what it took for them to really get this thing through entitlements and all that kind of stuff. So, being the AI storage guy, went into ChatGPT, went into deep research, gave it some prompts. I just want to share with you and everybody else what came up here, but also to share with people just how difficult it is to build in California. So, here's the address. Um, and by the way, I did email Lauren. She said, "Hey, there's a few things in this report that aren't totally accurate, but pretty much spot on." Just so if there are some things that aren't true, it's ChatGPT. It is what it is. Thaddius Campbell [attribution inferred]: But he is the AI storage guy. But trust but verify. I love it. Chris Berg: Exactly. Thank you. Um, but check this out, dude. Entitlements and planning approvals 2016. Thaddius Campbell [attribution inferred]: 2016. Chris Berg: And I'm going to let this sit for a minute because I'm going to bring up my Google Earth as well to show people something. Thaddius Campbell: Real estate is a get-rich slow game, right? People that rush to get rich in real estate go broke. Brett Henry is a genius. I have so much respect for that guy and of course Lauren Feny our our very close friend is likewise incredibly intelligent but they understand the long-term play. Chris Berg: Yeah. Well, and I think again if you talk to Brett he's like look I want hard to build sites. So I think what's important people realize they had to go through a rezone here. This was residential. They went through a general plan amendment. I mean he said I'm going to go beat my head against the wall because that's how much I believe you know in this asset or this this location. And so they got it rezoned. Um then eventually they ended up uh taking it from I think it was a certain amount. They had to change it again cuz they wanted to build a bigger site. I think it was 100,000 initially. Then they wanted to do like 168. So you can see just how arduous this process has been from 2016 all the way until it starts to give me kind of a rundown here. 2016 21 they actually closed on the deal. I don't know if those numbers are accurate, but you know, pretty close. Um, here there's a hearing fall of 2023, building application in 20. So, that's that's eight years later. Thaddius Campbell: Unbelievable, right? Your building permit. I mean, I mean, you throw in there that you got a three-year lease up projection that you're putting in there. You've got, you know, nearly 10 years to get to CO. The patience and the ability to deal with hurdles. Most people don't even want to read the ChatGPT script that you just pulled up, let alone go through, you know, 10 plus years of development pipeline to get their project profitable. Chris Berg: Well, now watch this. So, think about where we're at. We're in August of 2025. This is the location of the site. So, as you can see, you know, great, right up the freeway here, all that kind of stuff. But what I really want to get at is check this out. I'm going to take you to current day Google Maps 2025. It's not even done. They're just in construction right now. So, you're talking almost 10 years. Thaddius Campbell: Yeah. Chris Berg: From when they first saw this, like, hey, this looks good to actually getting doors open for a California self-storage site. So, you got to have capital. You got to have the long game. You got to be patient if you're going to build in California. Thaddius Campbell: Yeah. I I love that. And and I you know I think we talked a little bit a couple weeks ago about the disparity in tertiary market builds versus primary market where there were more self-storage developments in tertiary markets for a few years. We're going to see that swing a lot of the 500 and some that are under construction right now. Again predominantly in top 50 MSAs and I think that's going to be wildly important. I think you're going to see some pain in those tertiary markets. But the people who have the resources, the willingness, the grit to be willing to wait for 10 years. Because here's what we know about that facility. When those doors open, the rates are going to be fantastic. Yes. You know, that's the upside of that entitlement challenge. The harder it is to build there, the less you're going to have, you know, the less saturation you're going to get, the more you're going to be able to drive rates, which is going to be a fantastic long run for Trojan. How many people are willing to wait 10 years to see their return? Not many. And and kudos to that whole team because they're top of the food chain as far as it goes in self-storage development. I want to show you something when you get done. I'll let you go ahead. Chris Berg: I want to wrap this up as being your AI storage guy that I just want people to sort of process that I saw the site, went to ChatGPT, did deep research, put the address in, and I want people to digest and appreciate what just happened here. I did that deep research does its work while I go grab a cup of coffee or search on other sites or whatever and look at what this thing kicks out, Thaddius Campbell: right? Chris Berg: Like just appreciate it's got links, man. or if I actually want to go to articles, if I want to go to the city planning docs and see like it just lays it out and it would take me days to do this in the past, right? I mean, literally days and this thing kicks it out within a matter of I don't know what it was, maybe 20, 30 minutes. Point being, I'm going out and doing other stuff while my ChatGPT agent is getting me all this content and info. Thaddius Campbell: It's so interesting you say that. It's a conversation I've been having a lot lately. People are all worried about AI taking your job. AI is not going to take your job. Someone utilizing AI well is going to replace your job, right? It's not going to be AI that takes over for you. It's going to be the people like you who know how to utilize it and can maximize their time use because of that supplemental work that are going to really replace the people. Listen, get on board because the ship's sailing and it's moving fast. Chris Berg: Amen. Amen. So, kind of a shameless plug. If you need help with, uh, your storage and AI, you know, hit me up and happy to have that conversation with you because it's just incredible what it can go out and do. So, um, just want to say thank you again for joining us. Thank you, Thad, for doing this while you're in Denver. I know you probably could be doing some other things. So, appreciate your detail as always, man. Thaddius Campbell: I want to finish very quickly. I'm going to share a quick story from Steve Ross, who I've talked about a couple times. Steve is getting deposed in August on a lawsuit currently going through the court system in Maryland. Thought this is really applicable for everyone that's involved in self-storage. Hobby Lobby is suing the owner of a self-storage facility currently managed by Extra Space in Maryland. It's in a converted shopping center. Hobby Lobby is next door. Hobby Lobby is suing to get this storage uh facility removed from the commercial retail space and the premise of the lawsuit is that self storage is not retail and thus shouldn't be allowed to be in this space. Ironically, the store's been open for 4 years and they got the zoning approval they needed to go there. Hobby Lobby for some reason still thinks that they should sue here and create a lawsuit. What's really interesting, Steve is being called in as a storage expert to help prove that self-storage is in fact a retail asset. And what the defense is trying to do in this case is get self-storage in Maryland classified as a retail asset, which is going to have amazing ramifications if it actually happens. If the defense wins and the state of Maryland now classifies self-storage as a retail asset asset, it opens the door to really change the locations that self-storage is allowed in. Right. A lot of times now in various municipalities around the country, you're really restricted to finding an industrial or a mixeduse type of a zoning that allows for um self-storage to be built. So, keeping an eye on that case and and has a a chance to have a monumental effect on how self-storage is viewed from, you know, the city level, the community level, the planning and zoning level going forward. Chris Berg: So, is Hobby Lobby doing that because they want a a neighbor that's going to drive more foot traffic or I don't I don't even know why they would file the case. Thaddius Campbell: Yeah, I think that has to be a big deal of it. And and again, but goes to your point earlier about millennials and Gen Z are, you know, if you have 870 storage units and, you know, a millennial is is going to their unit at least once a month, you've got 20, 30 people going into that storage facility every day. Storage is starting to have a higher foot count. Of course, it's not the same as if you had a Jersey Mike's next door, right? Like, you know, obviously from a retail perspective, that's a a better deal. The alternative of that is would you rather have an empty space next door because that's what we're seeing in a lot of retail around the country and self storage has been a really good offset to that able to go fill a lot of those spaces in a way that at least keeps the space full. Right? If I'm Hobby Lobby, yeah, I'd rather have more foot traffic, but what's the detrimental effect of an empty building? You ever driven by a retail center that's 60 70% empty? It's an eerie feeling. If I'm Hobby Lobby, maybe I'm trying to kind of speak to my, you know, Etsy entrepreneurs and go, "Hey, there's a storage place right next door. You can go put your Etsy stuff." I just Chris Berg [attribution inferred]: create stuff. Thaddius Campbell: Well, Chris, you mentioned I'm in Colorado. I'm going to have lunch with the S3 team for my second to last day here. So, I want to try and wrap this up, but again, I want to just say thank you for this has been such a joy to do this show. Really excited to have Track IQ and their team on board with us as data partners, but even more excited to have gotten to know you better. was awesome to be able to break bread in person and and get to see each other live for the second time. Certainly a far deeper relationship now than we met at ISS in April in person. So really appreciate you and thanks so much for the the ability to come and do this show. Chris Berg: I love it, man. So thank you guys. Please share this video with friends and family, colleagues in the business if you feel like getting some value out of it. And as always, if there's things you want us to discuss or have some suggestions for us, please let us know. We're always looking to make this better for you. So, I'm Chris Berg, Thaddius Campbell. Have a blessed weekend. — END OF TRANSCRIPT —