From $500M in Called Loans to Self-Storage Empire: Brad Minsley's Vertical Integration Playbook

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_02 (00:00):
Welcome everybody to another episode of the Timeless
Investor Show, where we exploreenduring principles of wealth
creation through the lens ofhistory, philosophy, and
practical experience.
We aim to mine 5,000 years ofrecorded human history for
patterns that transcend marketcycles.

(00:22):
As you all know, we spend a lotof time on this show talking
about historical finance, greatmarket crashes, historic figures
throughout history, but We havea focus here as well to bring on
premium, amazing guests who havebuilt great businesses, gone
through difficult trials, andhave timeless wisdom to offer

(00:42):
our audience, mainly for myselfto learn from, but hopefully for
you as well and the readers.
So I am really honored to haveBrad Minnsley join us today from
10 Federal, which is a fantasticself-storage development
management company based on theEast Coast.
Brad and I share a few commoninvestors.
So I've been hearing about Bradfor years now, and I'm really,

(01:05):
really excited to have him onthe show.
I think Brad is a classic,timeless investor, a fantastic,
fantastic contributor to ourshow.
And I'm really excited to havehim with us today.
We're going to get into a lot ofstuff, the GFC, building a
self-storage business from theground up, vertical integration,
so many amazing topics we'regoing to hit today.

(01:25):
But I just want to open it up toBrad.
First of all, Brad, thank youfor being here.
And we'd love for the listenersjust to hear briefly about you,
your company, what you guys havebuilt, and then we will launch
into some awesome line ofdiscussion.

SPEAKER_01 (01:39):
Yeah.
First, thank you very much forthe opportunity to be here.
And to anybody listening, thankyou so much.
Yeah, Brad Minnsley, 10 Federal.
My brother and I started thefirm about, oh man, 15 years ago
now.
And we, you know, present day,we're out in Raleigh, North
Carolina.
We operate a self-storageportfolio with about 5 million
square feet across about 120locations, totally about$400

(02:01):
million in assets undermanagement.
And I think we're doing prettywell at the wealth creation
today, but that comes on theheels of a lot of wealth
destruction.
So, you know, you try to learnfrom the mistakes and I probably
made more than most, I guess, toget here.
But here I am.

SPEAKER_02 (02:17):
Here you are, surviving, thriving, crushing
it.
We're going to get into all ofthat.
I had a chance, everybody, to, Ilike to pre-interview our
guests.
We don't do a lot of guests.
So when we bring on guests, Ireally like to have a
Well-prepared thesis on whatwe're going to talk about, what
we're going to go through.
And Brad is an incredible guest.
I cannot reiterate that enough.
So, but we're going to start intimeless style.

(02:39):
And I don't think many of youhave gotten this sort of a deep
dive before.
Most of these shows, you know,Brad, you've done podcasts
before.
I've done podcasts.
I listened to Bigger Pockets foryears.
Many of these shows start withlike, how did you get into the
business?
And we're going to get to that.
But I want to start withsomething that I don't think
many of the guests have everheard, which is what is the
history of self-storage?
Like it is an American I thinkit's an American thing, mostly.

(03:02):
What is the backstory of, like,how did this asset class come to
be in the first place?

SPEAKER_01 (03:07):
Yeah, I mean, it's shocking it's not a New York
Times bestseller.
I mean, self-storage, how canyou not be more excited about
it?
But, you know, look, like manythings, it had a humble
beginning.
So, you know, I looked it up,actually.
It started, the first recordedself-storage deal was in Fort
Lauderdale, Florida in 1958.
But it really started gettingits going in the 60s.
And it was very niche.

(03:28):
It really...
Uh, started to be done in the,uh, oil fields of Texas, very
transient workforce and neededto put their stuff here, go that
oil field, you know, whereactions happen and come back at
their stuff.
So that's where it kind ofstarted to happen.
And what kind of quickly became,um, What became evident is that

(03:49):
it ended up being a pretty goodmethod as a covered land play.
I think that was kind of reallywhere it started to find its
footing because, you know, youtake a piece of dirt, you throw
up a couple of cheap shed typebuildings and you can rent them.
And so, you know, your capex,your cost was low, your
operating cost was low.
You didn't really need to havepeople there in the simplest
form.
And where it started to reallytake off was in California in

(04:14):
the 70s.
California is starting to growquickly.
People are trying to figure outhow to get out in front of the
path of growth and hold land.
And so whether you do a golfdriving range or a storage deal,
that's how it started to reallystart to pop up.
And then you start to see, youknow, real action.
That's when public storage wasformed in 1972.
U-Haul got in the game a fewyears later.

(04:35):
And it's just kind of gone fromthere.
Now it's a massive industry.
Yeah.
Is

SPEAKER_02 (04:43):
it a quintessentially American asset
class or does it exist outsideof the States?
I mean, is this like Americanshave a lot of stuff?
So we're a consumerist societyand it's like an American thing.
Like, like, is it, does it existin LATAM or Europe or the Middle
East?
Like.

SPEAKER_01 (04:59):
We, um, I'm not sure it's a great reflection on us.
I, if you look in the mirror, Ithink you'd call us a nation of
hoarders.
Uh, we, we are like 85% of theworld market, uh, you know, for
better or worse, take it, takeit for what you will.
Now the The rest of the worldis, you know, whether they're
becoming more like us and havingmore possessions and whatnot, or
maybe they're just, there's beenan unmet demand there.

(05:20):
We'll see.
But the rest of the world isstarting to catch on.

SPEAKER_02 (05:24):
Okay.
It's just a slight detour.
It's fascinating to me, like thequintessentially American real
estate styles, right?
Well, another one that comes tomind is senior care facilities.
So I used to work with a numberof Middle Eastern family office
investors, and they were veryinterested in senior care.
But culturally, senior care issomething you would never, would

(05:44):
never happen in the Middle Eastbecause the idea of shipping
your parents off to a seniorcare facility is anathema to the
culture.
And so many of these MiddleEastern family offices were
investing in senior care.
They're like, it's a greatbusiness model.
We would never do it because wefind it to be incredibly morally
unethical, but Americans love todo it.
So we believe in the assetclass, but it's interesting

(06:06):
because we're such a, I mean,obviously we're both Americans.
We invest here.
So we only know the Americanmindset, but there are these
things that are like, they justexist in the States.
Like, I don't think senior careis a huge market in other
countries because culturallythey don't do that.
It's fascinating.

SPEAKER_01 (06:23):
The thing that I think people would be surprised
by is that how big, like I say,big industry.
So let me, let me try to framethat.
So there's 53 to 60,000 storagefacilities in our country,
depending on who you talk to.
So what does that represent?
Let me convert that to units ofMcDonald's.
That is three times the numberof all McDonald's.

(06:43):
If I were to frame it indollars, we spend four times as
much storing our own stuff eachyear than we do going to the
movies or watching just anythingout of the Hollywood box office.
I mean, we're at$40 billion ayear revenue industry.
It's just kind of staggering howbig it is.

SPEAKER_02 (07:02):
That is shocking.
I'm shocked.
I mean, I love the McDonald'scomparison because it's another
quintessentially American thing,right?
And so like self-storage is evenbigger than McDonald's.
I mean, that's incredible.
That's awesome.
All right.
Well, thank you for thatbackground.
That is cool.
I didn't know that.
Makes a lot of sense that itwould have kind of evolved.
The cover land play piece makesa ton of sense because it costs

(07:26):
nothing to put these things up.
And then you're like, I can rentit.
So amazing.
That's awesome.
Entrepreneur's existenceeverywhere somebody had the idea
and it has turned into a massivebooming business and I have tons
of questions that we'll get todown the line about you know the
longevity and and and strengthof the business I've always I'm
not a self storage guy I'm amulti guy but it's always been

(07:46):
interesting to me like I can'tenvision storing stuff in a
storage facility I don't know ifyou personally store anything
but it's it's amazing to me thatthere's such a massive demand
for it we are a nation ofhoarders like you said so good
for us so I I love in ourpre-interview discussion, you
described yourself as aclassically trained economist

(08:07):
with a kind of a classic WallStreet style pedigree training.
You went to great universities.
I love to just get kind of yourWhere'd you come from?
Like, what was your training andeducation?
And I really want to dive in.
You have some really interestinginformation about the GFC and
being in a development firm.
I'd love to hear yourfoundational, your origin story,

(08:29):
your origin myth, if you will.

SPEAKER_01 (08:31):
Yeah.

SPEAKER_02 (08:31):
Not

SPEAKER_01 (08:32):
a myth.
Sure.
I have a brother, Cliff.
He's seven years younger than Iam, and he and I own the company
together.
But we grew up entrepreneurial.
I mean, we played video gamesthat were building businesses.
We got that from our mother.
I knew I was going to go intobusiness before I left high
school.
In fact, we were startingcompanies when I was still in

(08:53):
high school.
In college, to me, I thoughtthat business was economics.
So I started down the path oftaking economics classes and
really found the subject matterinteresting.
There's a lot of competingtheories, everything from modern
monetary theory to supply-sideeconomics, many in between.

(09:14):
And And, you know, everybody hastheir own opinion as to which
ones make the most sense.
And we can certainly doubleclick into that later.
But really, that ended up whatwas most profoundly helpful
about that was the looking atthe historical perspective of
the economics, because, youknow, that's where now that I'm

(09:37):
47 now, when we, you know, whenyou have enough years under your
belt, I guess you start to zoomout and you appreciate the
historical context.
That was first rooted in thelessons that I received in
college in economics.
But in any event, you know, setthat aside.
Where did the more formativeeducation come from?
Well, again, going back, I canthank my mom for that.

(10:00):
She ruined my plans freshmanyear of college to go work on a
cruise ship and float around theCaribbean sucking on rum drinks
and, you know, having a goodtime.
Instead, I found myself in somedude's office that was the
brother to a lady she workedwith, you know, and he was a
real estate developer.
I didn't know anything aboutreal estate.
This was summer of 96.
Yeah.
And super charismatic guy,though.

(10:21):
His name's Don Phillips.
He's been tremendouslysuccessful.
But, you know, he was, he was,we're doing modular homes at the
time, selling them, making agreat profit.
And I started doing math.
I was like, man, this guy'skilling it.
And this was on like a smallhousing subdivision.
And so, you know, I kind of gothooked immediately.
I ran out.
I was like, how else can Ifigure this out?

(10:41):
I got my real estate broker'slicense.
I got my general contractor'slicense.
And then teamed up with Don.
And he had, He, he got out overhis skis and had gone bust on
the single family home stuff.
So we were, I got there right intime as we were starting to
reinvent ourselves as amultifamily development shop.
So it's me and him in a livingroom in February, 2001.

(11:02):
And seven years later, we werethe 11th largest multifamily
development company in thenation judged by national
multi-housing council, uh, in2008.
So, uh, we had, um, about 500,well, about$700 million of,
multifamily developments indevelopment at that time and
things were going pretty great.

(11:25):
But that was...
That was right before the bigGFC.
So anything more you want on thebackground there, or is that
what you're?

SPEAKER_02 (11:32):
Yeah.
I mean, I, I, I'm kind ofcurious, like, so what markets
were you guys in the Southeast?
Like what markets were you guysfocused on at the time?

SPEAKER_01 (11:40):
Yeah, we, we started in, you know, we, we're blessed
with a good backyard.
We're right here, you know,Raleigh, Durham, North Carolina,
you've got great universities, agreat research triangle park,
just this great engine of, ofgrowth.
And so, you know, being in agood market can solve a lot of
bad performance.
And so we, we, we probablythought we were better

(12:01):
performers and we really werebetter operators.
Uh, but you know, just the same,you know, um, you know, the
rising tide floats all boats.
So from 2001 to 2008, you madeeverybody look pretty good and
we were no exception.
Um, but he, um, he had a friendin Florida, so that's how we
decided to go start doing stuffin Florida.
And, and, uh, that market was a,he ended up in Tampa and that

(12:21):
was, that was a perfect placefor him at charismatic style,
uh, you know, really traveledwell there.
And so we started doing deals inFlorida.
And then, you know, if you're,if you're got grand ambitions,
there's nowhere bigger to gothan Texas.
I mean, go big in Texas.
So that's where we went to.
We went and did twin 30 storytowers, a project called mosaic.
Um, that deal was a$220 millionproject.

(12:44):
At one point, it was the largestprivately funded project under
construction in Texas.
We're in Houston, right onHerman park.
Um, it won best ULI, uh, best,best real estate project by
Texas ULI the year it delivered,which was two 2008.
Um, so, you know, we had, we hada heck of a good time.
I'll be honest.
Yeah.

SPEAKER_02 (13:04):
Well, and we all know how the GFC ended or what,
how this, we, we, we, we, we canguess, and you're going to
describe kind of the, how we gotto, you know, the, the, uh, the,
the crash and then the risingagain and whatnot.
I I'm curious to hear, I mean,one of the things I love to dig
into on this show is mindset,right?

(13:26):
So, um, As you're growing andyou're expanding dramatically,
what was the internalconversations around risk
management, what the marketlooked like?
Was it there or was it sort oflike, because obviously, I was
in college at this time, so Iwas totally not acquainted with
what was happening other than Iwould see empty subdivisions

(13:46):
around Sacramento with theproverbial dust ball floating
through it.
What was the mindset and theenvironment with yourself, your
partner, and what you witnessedindustry around that time.
I mean, obviously we know fromthe big short, some people
understood what was happening.
I mean, were you guys kind ofaware of that or was it like,
no, the music will keep going?

SPEAKER_01 (14:08):
So one theme I've learned over the course of my
career is that there's theselike misperceptions about things
in our industry.
And like one of the biggestdisconnects, this is so strange
when you think about it, in realestate development is that we
want to go do a real estatedevelopment project.
So what do I do?
I hire an architect.
That guy's licensed.

(14:29):
I hire an engineer to take thearchitectural and make it into
structural plans.
He's licensed and credentialed.
I go out and I get a generalcontractor.
He's licensed and credentialed.
The only fool in the room thatdoesn't have any credentialing
is the developer.
We're fully unqualified to stepin here and take tens, if not
hundreds of millions of dollarsand try to go create a project.

(14:52):
And you have to kind of havelike a, I don't know if a big
ego is the right word, but youcertainly have to have a healthy
dose of confidence, I guess youcould say.
And so that is where there's afundamental breakdown in the
process is that a developernever asks himself, should I do

(15:13):
this?
He just asks himself, could I dothis?
Could I do this?
Does not bring about the bestoutcome.
Right.
So we're like, can we do a 30,twin 30 story tower?
Yes, we can.
Should we do it?
Maybe not, but here we go.
So, So, and there's, that's,that is, that is so permeates
through so much of thatdevelopment community.

(15:35):
And so we just go, uh, it is themost go, go, go mindset of a lot
of these developers.
And that's not everywhere.
It's, it's a, it's acharacterization of a, of a
subset, generally the ones newerto the game who haven't been
burned yet.
Um, I'm, I'm an aviator and, youknow, like there's an analogy
that, uh, that we use inaviation that they're, they're
bold pilots and they're oldpilots, but they're no bold old

(15:57):
pilots.
That's kind of true ofdevelopers.
I love it.

SPEAKER_02 (16:00):
That's so true.

SPEAKER_01 (16:01):
So, no, we couldn't really spell risk.
Now, I was in my 20s.
When I put that$220 million dealtogether, I was 27.
I didn't know anything.
I was still immature in mycareer.
It just seemed like if nobodywas telling us we couldn't do
it, then we might as well do

SPEAKER_02 (16:20):
it.
Yeah, you hate to paint everyonewith a broad brush, but I would
sort of agree.
I mean, I've never gotten intodevelopment, and I never did it
because I, I would say for tworeasons.
I always thought the returns,and this is debatable today, but
I always thought the returns onvalue-add multifamily were
comparable to the LP returns ona development deal, but with
significantly less risk.
So then I had the question of,well, why do it?

(16:42):
I think the answer is you canmake a lot of money, and there's
certainly a lot of you know, egoinvolved in being a developer
because you build somethinggreat and there's like a lasting
thing that you've created.
You know, it's not quite thesame feeling internally when you
take a 1970s complex and turnthe units and put hard
countertops in.

(17:03):
It's not quite the same thing.
But at the end of the day, Imean, a developer needs to be
sort of a visionary.
And in order to be a visionary,you're kind of running at the
bleeding edge.
And like, you're right.
I mean, I think there's probablya psychoanalysis of development
in general that lends itself toboom and bust cycles.
And obviously we really applaudgreat developers.
Like it's like, oh, you know,so-and-so is incredible.

(17:24):
He built this awesome thing.
You know, we're seeing that inevery market right now.
A lot of developers are reallystruggling.
I'm sure you see it on the EastCoast as well.
But I mean, it's like that isthe truism of real estate cycles
is like developers look greatand then they crash and they
look great and then they crash.
It's much more boom and bustthan other real estate asset
classes, in my opinion.

(17:45):
So...
All right.
Well, so let's dive into yourcrucible moment.
So the GFC hits.
You guys have two towers goingup in Houston.
I want to get into, like, whathappened.
How did you survive?
How are you sitting here doing apodcast interview today with

(18:05):
that much under construction,that much debt?
Like, tell me, tell thelisteners, how did you survive?
What happened?

SPEAKER_01 (18:12):
Yeah.
So the first thing is...
Okay, so it's like February of08.
We were a multifamily for rentcompany, but that was during the
condominium craze.
So you can't, you know, you're adeveloper, you can't pass up a
good time.
So we became a condo conversion.

(18:33):
We started converting everythingto condos.
February 08, sales just stopped.
I remember being in Florida.
We had a project on theSouthwest side of Tampa and
sales just stopped.
But things happen slowly in realestate.
We still had banks offering usterm sheets up through like
September of that year.
And then they finally got wiseof the fact that like things

(18:55):
were going bad.
And then immediately the bankstarted to come for us.
So they started to sue usimmediately to call our loan.
And, you know, what we didn'tknow behind the scenes was that,
you know, there was a big credittightening going on.
The feds were starting to, youknow, steepen the requirements

(19:16):
on the banks.
The banks were trying to then,you know, pare down their loan
exposure and get more cash.
And so they just want to getrepaid as fast as they could,
any way they could.
Learn about a terrible littleclause inside of your loan
documents called a materialadverse change clause.
If there's one takeaway I cangive you as an Easter egg from
this whole conversation, don'tlet a material adverse change

(19:37):
clause be in your loandocuments.
What it basically says is in thelenders, you know, if the lender
determines there's been materialadverse change to the project or
your financial condition, it cancall the loan.
Well, that's extraordinarilysubjective.
And they had it and say calledour loans, which totaled$500

(19:58):
million across 27 banks.
Now, um, we had 200 peopleworking for us within 16 months.
We were down to eight.
Um, We were basically fundingourselves off of development
fees, which stopped because thedevelopment had stopped.

(20:19):
We could barely keep the lightson with the eight people we had
off of the meager amount ofdevelopment fees on the deals
that were maybe open, maybeleasing up.
Meanwhile, every singlefantastic top floor of the high
rises around us law firm was nowsuing us or pursuing us.
And so we had to figure out howto survive this thing.

(20:41):
And what did survival look like?
And I'm, there's a lot ofdifferent ways to approach that.
I'm just going to tell you theone that we went down, which is
not, I'm not going to say thisis what I would do or recommend,
but I'm just going to tell youthe story because this is where
we went.
So that very charismatic guythat I worked for and I was, I
was a partner.
I was the only other partner inthe firm.

(21:02):
So it was really just me andhim, but he, he called the shots
to a large degree.
And what he said was after thefirst banks sued us, he said,
you know what, if they're goingto do this, I'd rather be the,
claimant, then the defendant.
So we turned around and sued allthe banks.
And we went to war with them.
And we had one little attorneywho had been kind of an

(21:22):
ambulance chaser, didn't reallyeven know anything about real
estate, but he agreed if we puthim on retainer, he would just
sue all these banks.
And so that's where we went.
And I had this like reallynaive, again, it's all about
misperceptions.
Here's the second misperceptionI had in my career was that the

(21:44):
legal system works efficiently.
It does not.

(22:06):
with discovery.
And what we kind of figured outwas that it didn't cost us a lot
of money to kind of bury thebanks in discovery.
And so, you know, this was stillpretty early.
You know, this was, you know,2008, 9, 10, they didn't really
have the technology, certainlynot the AI, things to like
process discovery efficiently.
So we'd send them in thousandsupon thousands of pages.

(22:28):
We'd send a U-Haul truck ofdocuments.
We'd put in the AIA manual forthe property and all that, just
bury them with paperwork.
But where we kind of weaponizedthings was with the emails.
So the judge would say, okay,everybody turn over their
emails.
And so they turn over emails.
We turn our emails over and we'dlook to see who had been carbon
copied on the emails.
And if they didn't provide thecopy of the email to who had

(22:52):
been carbon copied to, so wecould see if it had been
forwarded on or who else mightbe involved, then we could go
back to judge and say, hey, theydidn't provide these emails.
And so what we ended up doingwas just kind of keeping a
steady supply of those in ourback pocket that we could go
forward with.
I'm not saying it was right orwrong.
I'm just telling you it wasguerrilla tactics.
It was survival.
It was survival.
It

SPEAKER_02 (23:11):
was war.
It was war.
I

SPEAKER_01 (23:13):
understand.
But what ended up happening, sowhat we couldn't see at the
time, but we now see from behindthe scenes, was that the feds
were putting a tremendous amountof pressure on them to eliminate
their most toxic debt.
And the most toxic debt wasrated on a couple of things.
Number one, who was suing who?
If the borrower was suing thelender, that was a had to

(23:35):
strike, you know, that was, thatwas a bad strike against the
loan.
If we weren't paying themortgage or paying the interest,
that was another bad strike.
If we hadn't completed theproject and we learned this
actually through discovery.
And so we stopped constructionon the, you know, the one yard
line for all these projects.
So it wasn't, you know, buttechnically it wasn't done.
And so that was another majorstrike against it.

(23:58):
And then in the consequence ofhaving all these strikes and us
being literally, we would hitthe top of scale on the most
toxic debt they They then had toreserve tremendous amounts of
cash against us, which was, youknow, that was a scarce

(24:22):
commodity for these banks.
willing to come in and buy theseproperties, you know, albeit we
had to get down to a really lowprice, but we'd have to settle
something with the lender andwhatnot.
And so like the last deal I didwhen I was there, we built this

(24:44):
deal for$72 million.
We had$65 million of debt on it.
So you can get an idea of howhighly leveraged we were
generally going.
I negotiated that those lendersdown to walk away for a payment
of$40 million.
And we had a buyer waiting inthe wings for$44 million.
So we took a project we builtfor$72 million, sold it, Sold it

(25:05):
for 44 million and made$4million.
So, you know, I'm not going tosay that's a playbook anybody
should follow.
It's the Eastern Front, youknow, World War II, you know,
grab a machine gun, run at thebunker method we took.
But, you know, we learned a lotalong the way.
And the thing is, so just BeforeI get into how that became Rise

(25:33):
of Phoenix from Ash type thing,I'll pause there in case you had
any questions on any of thosegory details.
Yeah.

SPEAKER_02 (25:42):
Yeah.
I mean, one of the things thatwe kind of discussed in the
pre-interview is what happenedwith your guys' large twin tower
construction in Houston.
I mean, that was a big project.
Was that the biggest project atthat point for you guys?

SPEAKER_01 (25:55):
It was.
I'd put that financing togetherwith Chorus Bank out of
Illinois, out of Chicago.
And that project ended,unfortunately, in a foreclosure.
It was the only one that went toforeclosure.
Every other one, we basicallydid some kind of a short sale.
But that one, Texas was hard inthose courts.

(26:18):
And we didn't have unilateralcontrol over it.
We couldn't quite do theguerrilla warfare we're doing.
So, Corus took that one back,$144 million loan.
And I think that might have beenthe straw that broke the camel's
back.
The FDIC closed that bank downthe following week.
So, I don't know if we can takecredit for taking a bank down.

(26:40):
It's not something I'm proud of.
But, you know.
Yeah.
A lot of banks went down.

SPEAKER_02 (26:45):
A lot of banks went down, and I'm sure it wasn't
just your loan that brought themdown.
But, I mean, that's incredible.
Tell me about your mindset atthis time.
Where were you mentally?
Were you just like, I'm done?
Did you have children at thetime, a family?
Oh, yeah.
Where were you?
I

SPEAKER_01 (27:05):
was having a kid every five minutes.
I have five kids, and they'reall two years apart or less.
So, yeah, you know, it was– Oh,man.
You know, um...
the most important element, likeif, and I'm sure this is true in
any, in any, in any industry orany, anything, any career.

(27:28):
I think the guys that ultimatelydo well in the long run, like
one attribute, I think that'sreally important is just grit.
Like, like we just never gaveup.
And why?
Number one, we had some personalguarantees to defend against.
So like, it was like, there'sone thing to lose the properties
or another thing to lose yourhouse.

(27:49):
So, you know, when your back'sagainst the wall, you know,
necessity becomes a mother ofinvention.
So, you know, we just stuck inthere and grit.
And the grit does a couple ofthings.
Number one, we figured thingsout.
Like we figured out theguerrilla tactics in the

(28:09):
litigation and that time gave usopportunity.
Yes.
You know, number two, you know,I don't ever want to go through
that again.
but I'm not, I'm not afraid to,you know, you end up battle
hardened.
Um, and, not justbattle-hardened because you got
through a stressful period, butit gives you the confidence that

(28:31):
you know that if you're backagainst a wall, if you sit there
and think hard enough, you'llfind a solution.
And confidence is important.
It gives you the steady hand inthe storm.

SPEAKER_02 (28:42):
Yeah.
I'm curious.
I mean, I want to get into yourrise and kind of moving past
this sort of unprecedented realestate meltdown, as we all know.
But you knew a lot of guys.
I'm sure you knew a lot of otherguys in the industry.
And you mentioned grit, figuringit out, confidence.

(29:02):
What would you say is thecommonality of the guys that
flamed out and kind of nevercame back?
Is it a lack of grit?
Because there's many people thatlost their shirts in this
period.
And I think from ourconversation, you effectively
lost your shirt also.
But you came back.
What is it about the guys thatyou knew that didn't come back

(29:23):
and they ended up going tobanking or getting a regular
job?
Like what, what is thedifference?
Like what, what was it aboutthem?

SPEAKER_01 (29:29):
Yeah.
Um, look, everybody is going tomake the best decision for
themselves.
Uh, you know, I think the guysthat, that stayed through it,
you know, it's, it is that kindof the grit that, you know, if
you get knocked down, just getback up again.
You know, there's a Japaneseproverb, like, you know, if you
get knocked down eight times,stand up a ninth time, you know,
I love that one.

UNKNOWN (29:48):
Yep.

SPEAKER_01 (29:48):
You know, you, um, I think that was probably the
primary one of the guys that,that saw it all the way through.
Um...
And, and part of that is, iswilling to make that investment,
right?
Like, like we didn't just thinkabout surviving.
We, from, from the beginning, westarted to think about, you

(30:09):
know, well, look, this, thiswon't go on forever.
What does life look like afterthat?
Right.
And, and that is, you know, andI think part of that a little
bit comes down to like thevalues.
You know, the guy I worked for,we had this saying, in fact, it
was, it ended up being on a signabove a door.
It's, you know, it's not whatyou start But when you finish,

(30:30):
um, and what that, um, the, thetwo things that, that gave us
the opportunity to start ourcompany were the combination of,
of grit and values.
Um, even though we took a veryguerrilla, uh, type approach to
combating these banks, therewasn't anything we did that was,
uh, you know, uh, Legally wrong.

(30:54):
We're just soldiers on abattlefield.
I don't know that a soldier inRussia and Ukraine wouldn't be
happy to have a beer with oneanother, but right now it's
their job to fight each other.
That was true with us with theloan officers.
On that property that we tookthe debt down from$65 million to
$40 million, the guy who satacross the table from me during

(31:17):
that experience is an investorwith us today.
Amazing.
The investors who we protectedby staying in there and fighting
the fight and taking some of theproceeds of these short sales to
help them get some, if not all,their capital back were our
launch investors in 2010 when mybrother and I went out on our

(31:37):
own.
So it's just staying committedto the cause, I guess.

SPEAKER_02 (31:45):
Yeah.
So last question on the GFC.
I mean, looking back now, whatlike what's the the biggest
thing you learned that you kindof carried forward with you
obviously don't leverage toomuch don't do development seems
like you haven't really done Imean I think you've done some
development but not quite at thesame scale like what would you
say is like the other thansurvival grit using the legal

(32:10):
system fighting tooth and naillike is there any like timeless
learnings that came from thatperiod that you're like i will
never commit this error again oradvice for other guys i mean
because you know right nowthere's a lot of developers that
are kind of in your your shoesfrom 08 they're in the they're
in that situation again rightnow so it's like what what did
you what did you take from thatthat you'd advise like any
younger developer right now likedon't do this or be mindful of

(32:33):
this

SPEAKER_01 (32:33):
yeah so um I'm going to give you two, two buckets of
advice.
First one's going to sound likea grandparent because, you know,
and I'm starting to understandwhy, because as I get towards
that age, I'm, I'm starting tounderstand like you don't, you
eat your vegetables, you know?
Yep.
You can survive high leverageand, And you can survive a

(32:54):
bullet payment, balloon paymenton a loan, but you can't survive
both.
It works fine if everything'sgoing great in the market, but
every couple of years, themarket's going to be great.
Every couple of years, themarket's not going to be great.
And so to stay out of this, youcan have high leverage as long
as you have really long term.
Going back to misperceptions,people think, like in

(33:16):
multifamily, people think, oh myGod, the multifamily industry
tanked.
Well, let's break that down.
During the GFC, multifamilyrents only went down, depending
on where you were in thecountry, 3% to 5%.
That's not going to default asingle loan anywhere.
Your debt service coverageratio, that is a blip.
That is not the problem.

(33:38):
But what happened was with therents coming back and with
credit tightening, leverage fromthe banks went way backwards
without leverage.
People can't pay as much fortheir properties.
Their property values tumbled.
And that's how you had a$72million property going down and
being worth$44 million.
So a 3% to 5% sniffle on rentsbecame a catastrophic and

(34:02):
traumatic drop in value.
So if you'd been 95% levered atthat time and you had long term
where you didn't balloon outduring the GFC, you'd have been
fine.
If you'd also been$40 millionlevered, we would have been fine
also.
So don't set yourself up in thiscrosshair going into it once

(34:24):
you're in it just just just workyour your butt off uh yeah you
know there is a solution thereuh you just haven't thought of
it yet just hang in there yeah

SPEAKER_02 (34:37):
well and the interesting i guess the
corollary question to thatbefore we dive into kind of 2010
onwards is the material adversechange component of the loan
document would mean that you'restill sort of that's not a loan
no material adverse change anddo lenders usually give it to
you because we've had this samedialogue on what does that mean

(34:59):
when does that get called andwell you know like that's not a
bullet payment yeah okay andyou're are you successful
getting that done because i'vefound lenders to generally yeah
yeah okay

SPEAKER_01 (35:08):
some lenders some lenders more than others um yes
right but uh but it's anon-starter for us because yeah
it it's an embedded balloonpayment that that you don't want
to have yeah

SPEAKER_02 (35:21):
yeah well it's interesting like that That's
your wound that you're nowfocusing on never having happen
again.
I think this generation ofvalue-add multifamily guys like
myself will probably never usethree-year cliff bridge debt
again for a value-add project.
My entire generation of guysthat came up 2016 on will
probably never use that productagain.

(35:42):
It's like the Great Depressionera never used margin loans
again.
They just were like, I swore offit, swore off this kind of debt.
You're really mindful of that.
I will probably never use athree-year bridge loan again,
because it's been, you know,we've, we've been fortunate with
our portfolio to kind ofnavigate those, but a lot of
guys in Texas in particular havelost their shirts on that bridge
product and, and they'll neveruse it again if they survive.

(36:05):
So, all right.
So 2010, you and your brotherleave with the shirts on your
back, I think is how youdescribed it.
And, and so you went back tomultifamily, right?
They were not yet to selfstorage.
So I love to hear kind of whereyou guys went, what what you did
and why you didn't jump intoself-storage immediately.

(36:26):
Because obviously that's been ahuge winner for you guys, but
you didn't do it.
So tell me about that, the risefrom the GFC.

SPEAKER_01 (36:34):
So my brother and I started our company, 10 Federal
in Tampa, Florida in June of2010.
And I remember our first office,like you talk about no shirt on
your back.
Our first office, the monthlyrent was$145.
It was a single office and wesat like perpendicular to each
other and we couldn't both backour chairs out at the same time.
Otherwise, we'd hate each other.

(36:55):
But, you know, Tampa's terribleoffice is hot.
We'd gone to a yard sale.
We bought a fan for$5, and itwas$5 because it lost its front
cover.
And you had to be careful not tostretch back and put your hand
in the blades of the fan there.
So we had our adjacent tenanttaught people how to sing, high
school students.

(37:15):
So we'd advance all of ourimportant calls by 3 o'clock
each day because otherwisethere'd be teenagers belting
Katy Perry songs at you.
Amazing.
Start.
In 2010, there were no newinvestors, right?
But we're fortunate that we haddone right by our existing
investors.
And they said, so Brad, we willsupport you.
What do you want to do?
And we had been so burned by theballoon payments.

(37:38):
We said, look, we want to go theother direction.
And so housing and urbandevelopment, which most people
know for low-income housing, wedidn't go to that side of the
house, but we went to theirmarket rate lending side.
And HUD has this loan programfor like an acquisition loan.
It's called 223F loan.
It's a 35-year term loan with a35-year amortization schedule.
So you're never, ever going toface a balloon payment.

(38:00):
And so it got other awesomeattributes.
The federal government's yourco-guarantor, so the rates are
artificially a little bit lower.
The leverage is very high, about80, 85%.
So we went out and startedacquiring multifamily.
And our, you know, going back tomy econ background, I said,
look, TARP was going on, right?
We're printing$800 billion.
Sounded like a lot back then.

(38:20):
Now it doesn't sound like it.
But, you know, we're like, thisis going to cause inflation.
Like, we should buy hard assets,get fixed debt in arbitrage, you
know, that, you know, theappreciation of the hard assets,
right?
And I said, this is going to begreat.
You know, we buy these deals.
It's going to probably take 10years before we want to sell

(38:41):
them.
But, you know, I think this isgoing to be a great business
plan.
And so our original investorssaid, okay, let's do it.
And so we bought, you know, twoproperties within the first 18
months.
And we, you know, tackled a fewmore.
with some other new investors asthey started to come back.
But over the course of fiveyears, we'd only built off about
a...

(39:02):
1500 unit portfolio.
That was about$150 millionportfolio.
And we were, we didn't have anymoney to invest in it.
We were basically a glorifiedbroker.
We couldn't really put ourbrokerage fees in it because for
love of God, I had to feedmyself somehow.
And so, you know, we ended upgetting like, like tiny, tiny,

(39:24):
tiny bits of ownership in this.
And it was so meager that weactually started, we took
property management in-house andand did it ourselves just to pay
the bills.
And that was hard, man.
Like it was slow going.
We're like, how on earth, youknow, like we got this
portfolio.
It was great.
It was stable.
You know, we're making a littlebit of money, but we weren't on

(39:46):
a path to wealth and riches byany means.
Like we couldn't even raise moremoney until that first portfolio
went full cycle, which by theway, the last property just sold
three weeks ago.
And that cohort of propertiesreturned a 24% ROI in five

(40:07):
multiple on the equity.
So we were right.
But we have, you know, we'd justbe raising fund two now.
So,

SPEAKER_03 (40:15):
you

SPEAKER_01 (40:16):
know, so that was up through about 2015.
And we, you know, my brother andI said, look, how do we get a
bigger piece of the pie?
And we said, you know what,let's vertically integrate
through the development andconstruction piece of this.
So, you know, in a developmentdeal, a developer might get paid
a development fee for 5% to 10%of the total project cost.

(40:40):
The general contractor mightpick up another 5% to 10%.
There's acquisition fees.
There's finance fees.
There starts to be a larger bodyof fees But we have to go
develop the multifamily deal.
We have to be the GC on themultifamily deal.
And these are like complexbuilds.
I mean, I think we counted upone time.
There's like 32 subcontractors.

(41:02):
We're going to be like, not justsubcontractors, but like, like
disciplines of subcontractorplumber, you know, all these
frame or all these differentguys.

UNKNOWN (41:10):
Yeah.

SPEAKER_01 (41:11):
So he said, let's start with something simpler.
I said, well, let's go doself-storage.
And I had flirted withself-storage right out of
college.
The guy that did multifamily hada partner who wanted to do
self-storage.
So they had to decide which onewere they going to go do.
This is the mistake of youth isI'm 20.
I judge which industry do I wantto be based upon how exciting is

(41:35):
that going to be at a cocktailparty and how likely am I going
to get a date?
I mean, this is like a terribleway to evaluate what's going on.
industry go to you should likelook at it like here's what's a
competitive landscape what's thecapital market like what where
can you build asymmetricopportunities and but now i made
a you know immature mistake as a22 year old so we went i signed
up in multi-family but i said ihad exposure to self-storage

(41:57):
it's simple to build we haveeight sub trades and so we said
okay let's go let's go buildself-storage so we took our
bright idea down to the bank anduh the bank said what do you
knuckleheads know about uh youknow doing self-storage you
never even operate one gooperate one first prove you can
do that and then we'll maybegive you a loan to build one so
i said okay great so we wentback to our investors we said

(42:17):
we'd like to buy a self-storagedeal so we we bought it and this
was in august of 2015 and

SPEAKER_02 (42:24):
right before it got i mean your your market timing
is incredible like 2010 to buy abunch of stuff on hud loans 2015
self-storage wasn't really it'skind of like mobile home parks
too like i feel like 2015 to2020 that industry just took off
but probably 2015 nobody'slooking at it yet right

SPEAKER_01 (42:39):
no it was um And it's still pretty good.
And we'll get into some of thosemetrics in a moment.
But here we are, August 2015, bythis thing.
And new technology at the time,cameras you could watch over the
internet.
This is like, holy cow, I'm soexcited.
I mean, I'm a technologist.
I've been coding since I was inhigh school and putting printed

(42:59):
circuit boards together.
So I was like, put this monitorup in my office, start watching
what's going on at our prizestorage deal.
And literally, I'm watching ourmanager sit at the desk with his
feet on the table uh there'slike three people that come in
each day and i'm kind of sittingthere i'm like man rewind the
clock to like let's say 1995 youknow here's 2015 like if you

(43:22):
asked a person in 1995 which ofthe three industries would not
be automated the bank teller youknow the folks washing your car
or the the dude renting you astorage unit i don't think
anybody would think renting thestorage unit would be the one
that's not automated because wemoved to atms we moved to the
you know wash bay they can washa prius or an expedition all in
the same bay and here'sself-storage we're still renting

(43:43):
with a person at the office sowe we set about figuring out how
to rent a unit through thewebsite um there was no
off-the-shelf technology to dothis i mean i was taking i was
3d printing 3d printing had justcome out where we're 3d printing
some parts and trying to hook uplift master things from a
residential garage and wiringstuff together no one got

(44:06):
electrocuted we but we didfinally after about a year
figure out how to rent a unitthrough the website, how that
communicate to the controlledaccess gate system at the
property.
And so a person could rent aunit, you know, sign their lease
online and then get into thefacility and get to their unit.
And so we fired our manager andwent unmanned.

(44:29):
And then it took us 12 months.
One,

SPEAKER_02 (44:31):
one, one building, right?
You guys, this was the firstproperty.
Okay.
Got it.
Okay.

SPEAKER_01 (44:35):
So here we are, you know, like August ish, 2016,
September, I guess.
And we had never rented.
The best month that property hadin the 12 months we'd owned it
to that point was at least 33units in one month.
The first month we wentunmanned, we leased 48.
And we're like, holy smokes,this is great.

(44:59):
But what I started noticing werea lot of people were moving in
after hours, sometimes in themiddle of the night.
I was like, oh my God, maybe wejust let in the entire criminal
element of Durham, NorthCarolina.
But I call these people and it'salways the same story.
It's a kid who's going homebecause he got kicked out of
school and whatever.
He hasn't done anything with hisstuff.
His flight's next morning, andwe're the only show open at 8

(45:21):
p.m.
Our family's coming fromFlorida.
The U-Haul broke down.
Now they're there.
The CubeSmart's closed.
So we had a monopoly on themarket because everybody else,
nobody else could rent online.
That did not happen for fivemore years until COVID came
around.
So here we were.
cracked the code on unmanned andwe said okay this is more

(45:44):
exciting than the verticalintegration on on construction
now we actually did build acouple storage deals the lender
did let us do that and but thenthat was it then we started
raising funds and we starteddeveloping more technology to do
the automated self-storage andyou know if you kind of cascade
that quickly a quick preview ofwhat's to come 2017 we did our

(46:05):
first fund it was 10 million2019 we did a 32 million dollar
fund 2021 a 45, then 23, 115.
Now we're raising a, you know,150 plus million dollar fund.
Amazing.

SPEAKER_02 (46:19):
And it's, it's interesting too, because I, you
know, we've looked at, we'velooked at raising a fund here
and been kind of mulling it andworking over it.
And I find that, Like most guyswith your background and my
background, right?
Classically trained, some sortof Wall Street, whatever
background or like, I got to goout for$100 million fund for my
first fund.
Like, I love that your firstfund was 10.

(46:40):
Like, I'm sure everyone waslike, why don't you go for 25?
Why don't you go for 50?
Right.
And it's like, start smallscale.
I'm like, I'm sure you gotpressure at the time that was
like, hey, why don't you gobigger?
Like, think bigger, go bigger.
And you're like, not 10 is good.
Like, let's let's do amanageable size and execute.
Right.
Like, was that Did you get thatfeedback?
Like, you should go bigger.
Like, you should try to do abigger fund.

SPEAKER_01 (47:02):
Yeah.
You know, everybody loves tokind of tell you what you should
do.
We're like, I don't know howwe're going to raise$10 million.
Like, this is going to be hard.
The last deal we raised, thedeal we bought was$2.4 million.
And I think we raised like 800grand.
And that was not easy.
But we just felt like- How didyou do it?

SPEAKER_02 (47:20):
How did you do it?
I mean, for my own edification,I'm curious.
How did you raise 10 when yourlast deal was 800K?

SPEAKER_01 (47:26):
Yeah.
you know, sometimes it's betterto be lucky than good.
And so we just happened to be-We're

SPEAKER_02 (47:32):
still in pie.

SPEAKER_01 (47:35):
Let me get a few lucky breaks.
But, you know, it was a jobsact.
It was on the upswing ofcrowdfunding.
So we hooked up with, you know,one of the groups that was early
at the time, CrowdStreet.
And they even told us, theysaid, Brad, we think we can get
you about a million bucks.
Well, darn if we didn't get sixand a half million from them.
And then, you know, theautomation thing was really

(47:58):
intriguing to people.
And so like, you know, that,that kind of existing investor
base we had basically filled outthe last three and a half
million, but that took us 18months to raise 10 million.
You know, now we raise three,four times that in a quarter.
So, you know, it's, but, youknow, we couldn't have done it
without the crowdfunding.

SPEAKER_02 (48:21):
Good timing.
As we talked about, the start ofthat industry was easier to get
on their portals and kind ofraise stuff.
But that's, I mean, that'samazing.
So, you know, Brad, the thing Irecall from our pre-interview
that I just think is awesome,and I really want you to kind of
hone in on is, you and I talkeda lot about how guys that come
into these businesses are sortof trained on a notion of like

(48:44):
scale, scale, scale, and don'twork in your business, work on
your business, be a visionary,think about, growth projections
like just all this stuff rightand that leads to third-party
management third-partycontractors third-party
everything right where you'rejust outsourcing everything to
other people and a lot of theyou know I'll speak for
multifamily in particular but alot of the like guru coaching

(49:07):
world really preaches this pointright and I am guilty of that
myself when I got into thisbusiness we thought about
scaling and working withbest-in-class third-tier
management companies but youguys made the decision to go
in-house and I understand therewas an economic pressure as well
but you know you made thatdecision I know you mentioned to
me that you guys got caterpillarlicense like like what I really

(49:28):
admire about your approach isit's like the opposite of the
typical advice and and like thethings you're describing right
looking at the video cameraseeing the manager these are
things that guys that aregetting into the guys and gals
getting into this business arenot taught to think about it's
like look at the spreadsheetsfrom a high level and scale and

(49:50):
I I I love your approach.
I've had my road to Damascusconversion on this topic, and
I'm very focused now on verticalintegration and control of every
aspect.
Tell me about that evolution inyour process because I feel like
from hearing your story, a largedegree of your success and the

(50:10):
fact that Ted Federal hasproduced consistently high
returns and consistently raisedmore money is due to that.
What was your conversion pointon that?
Tell me about the control ofevery aspect.
Again, monitoring the videocameras is not something most
people that do this would evereven think to do like that's
awesome so

SPEAKER_01 (50:32):
yeah so I'm gonna give you I'm gonna give you a
two-part answer one is that whatwhat I think most people don't
realize is how many operatorsactually do more harm than good
I'm gonna come back and actuallyquantify that for you in a
moment but I didn't understandthat until until we actually
operated ourselves and like togo back you reference capital

(50:55):
equipment so like like we wewant to understand how
everything on our business worksdown to the most granular detail
all the way down the chain.
So when my brother and I decidedto go vertically and grand to
the construction, we gotunlimited GC licenses, both of
us.
We decided we wanted to do sitework because site work is black

(51:17):
math.
A lender's never going tounderstand whether the site work
on this site should be a milliondollars or two million dollars.
And that lack of knowledge is anopportunity to put in a market
rate but on the high end of themarket rate uh bid for your own
work uh and roll that profit inas your equity so it was a it
was a fat equity opportunity butliterally to to to be prepared

(51:41):
to defend ourselves like if youknow how to do everything you
can drop in and triage anythingand so my brother and i are
certified on a you knowcaterpillar you know 963 for
track front loader a 32 anyeight uh tracked excavator a d5
dozer a you know skid steer youname it i can do it.
Not well, but I truly understandit.

(52:03):
They're like most granularlevel.
And that's important.
Like, like, like if you don'thave that level of knowledge,
you're going to be takenadvantage of a classic example.
I remember, you know, a guy'slearning from the construction
said, he said, I'm going to showyou something.
And we pulled out this bid wehad from a general contractor to
do a multifamily deal.

(52:23):
This was, you know, this waswhen I was at the development
company in Tampa.
He said, this is a back This isa valve that keeps the water
inside the apartment communityfrom going backwards into the
municipal supply.
And he pulled it out and herewas this bid from the general
contractor.
This was the price they're goingto build it for.
And it was cost plus, right?

(52:45):
And so they had all their subbids.
And we went through it and thebackflow preventer was in the
fire alarm sprinkler guy's bidbecause he has piping.
It was in the plumber bids deal.
And it was also in thelandscaper.
And he said, again and triage aproblem.

(53:31):
Now, why would I say most, youknow, it may not most operators,
but like a lot of operatorsactually harm performance.
So this is another misperceptionis that, you know, you have to
create value, like you're goingto deliver a double digit
return.
You must be able to create valuethrough your operations.

(53:52):
Well, I'm going to take singlefamily housing and you can get
on AI and in fact, check me onthis.
Okay.
Single-family housing from 2000to where we are today has a
CAGR, compounded annual growthrate, of about 4.5%.
That's nationwide.
I mean, that's like ruralAmerica.
That's blighted areas.
If you take a subset of like,just give me the Sunbelt or the

(54:15):
good markets in the Sunbelt,that's like 5.5%, okay?
So if you just owned asingle-family home from 2000 to
2025, you're going to make a5.5% return unlevered, all
right?
Unlevered, right.
Now, if you lever it, like leverit.
let's just say you lever up to75%.
Okay.
And let's just say you rent thathome and it pays the mortgage.

(54:36):
You're up into like a 12, 14%,something like that.
I'll have the math in front ofme, but you're into double digit
returns.
And the reason I'm pickingsingle family homes is there's
no operational component.
If you just own that home and donothing to change it and sell it
25 years later and use 75%leverage along the way and

(54:56):
rented it.
So it just covered its mortgageYou're into double-digit
returns.
So as a real estate operator, ifyou're not into like low
double-digit returns, you'reactually doing more harm than
good as long as you're usingmodest leverage.
And that's like the tragedy kindof in all this is like, you

(55:16):
know, like you said, folks comeout, this is a knock against
them.
There's some that are very smartand they make a lot of money and
make great investment decisions.
But there's a lot of them thatwant to skip that hard step of
really understanding theoperations.
so that they can defend againstthe bad.
They can make more value, defendvalue, and not do harm.

(55:38):
And going back to the economicsfor a second, you talked about
$800 billion in TARP.
Now we're doing$8 billion in thelast eight years or whatever.
The CAGR on single-family homesfrom 2000 to 2025 has been 8%.
So you don't have to do as muchoperationally.
Just use some leverage thatyou're not going to get hurt

(56:00):
with and let let let it run andyou're going to do well

SPEAKER_02 (56:04):
yeah amazing yeah i mean i'd love to uh i totally
agree with you and i i thinkobviously real estate over time
has been a proven performerespecially on a levered basis
the the wrinkle is always yourdebt and your debt terms and
does your debt permit you tohold for 20 years or do you have
a three-year cliff on it whichis hence my comment on the

(56:25):
bridge debt big mistake right inthe in the in the scheme of
things.
One of the things that reallystruck me about what you guys,
in addition to the, you know,the maniacal in a good way,
focus on vertical integrationand control.
I mean, you guys have built newproducts.
You guys have invented newtechnology.
Like it's really cool andimpressive what you guys have
done.

(56:45):
I love, I mean, if you want toshare the, I think the DaVinci
lock is the, I think is what youcall it.
The, you guys have built newproducts.
I mean, it's incredible.

SPEAKER_01 (56:54):
Yeah.
So, so we, uh, when we took ourself-storage portfolio unmanned
there was a part of the workflowthat we had to solve for which
is when you when you don't payyour rent like you have your
lock on your little master lockand then if you don't pay your
rent the manager comes out andputs their lock next to it now
you can't get in you know untilyou pay that manager they take
it off well oh man we didn'thave we didn't have anybody

(57:15):
there and we tried like mad tomake the electronic locks work
but they were costly they failedthey there was nobody there to
teach people how to use them sowe started labeling mechanical
combination locks just you knowas a four digit code and we had
a label and might say 10 federalon it or might say, you know,
two, five, four, two Austinknows the address.

(57:35):
And we just knew if it said 10federal, the unlock code was
four, five, four, five.
So then our call center couldtake the payment over the phone,
ask them what, what label is onthe lock, give them the, that
over back over the phone.
And damn, it worked great.
And I ignored my people for likesix months.
Like Brad, can we just do thelabel locks?
I was like, no, we're going tomake these electronic locks
work.
And you know, maybe not be a,you know, I, I'm, Elise was

(57:59):
smart enough to listen to himafter about six months and said,
you know, maybe there'ssomething to this.
Maybe an enterprise systemcoupled with something as simple
as a combination lock wouldwork.
And so, you know, that's wherewe are now.
This is one of them.
So, you know, see the serialcodes marked with the QR code,
which launches that enterprisesoftware system.
And that thing is used in one ofevery seven stores in the

(58:20):
country now.
And it's in every single publicstorage.
And we have 13 patents on it,the last seven of which got
reissued refactored so we couldgo to any industry.
We'll be presenting at VentureAtlanta in October to see if we
can raise venture money to dowhat we've done in self-storage
and education and freightforwarding and logistics,

(58:42):
utilities, and so on and soforth.

SPEAKER_02 (58:44):
I got a venture capitalist for you.
We'll talk after the call, but Iknow a couple of PropTech guys
that would probably be reallyinterested in this.
Well, it's funny because I wasjust on site yesterday on this
note.
I had a resident got locked outof his unit and there's like
five lockboxes All over theplace from various different
management companies.
And I had to go to one of thelock boxes and I pull a text
message from the maintenancetech.

(59:05):
And there's like 10 potentialcombinations that might be.
And I had to sit there and Iwent all the way to number seven
till it opened.
And I was thinking in my head, Iwish I had the DaVinci lock so I
could just point my phone at itand open this puppy.
But, you know, I think it'sawesome.
So that's awesome.
I mean, I think this whole storyis incredibly inspiring and I'm
inspired.
I'm sure the listeners will beinspired about what one can do.

(59:28):
if you're willing to get yourhands dirty and get into the
weeds.
Today, you guys are raising afund, correct?
You're on your next fund.
And tell us a little bit aboutyour investment thesis today.
And you described yourinvestment thesis as bringing an
AK-47 to a knife fight, which Ilove.
And I dive into that for us,please.

(59:48):
I mean, that's awesome.

SPEAKER_01 (59:51):
Okay, so we have two ways we create value.
One is data science.
I'll come back to that secondand the others the automation
and like the automation, it's,it's, um, When you understand
what we're doing and how thatcompares to the competitors, you
understand why it's an AK-47 ina knife fight.
So imagine a graph with twoaxes.

(01:00:14):
This axis is customersatisfaction and this one's
operational efficiency.
And customer satisfaction isjust a proxy ultimately for
rental rates.
Now, on that graph, think abouta REIT, like a public storage, a
CubeSmart.
They're very, very good atcustomer satisfaction.
So they're way up here, butthey're not operationally
efficient.
They have 2.2 employees perstore.

(01:00:35):
Now, take that mom and pop thatyou drive down a country road
and you see it out there.
It's a little storage zone.
It's got a phone number on thefence.
It may not even have a website.
Half the stores in this countrystill don't have a website or
they have it.
It doesn't even have pricing onit.
They don't have it be on site.
Operationally, they're veryefficient, but their customer
satisfaction is terrible.
You can't even rent online.

(01:00:57):
You got to call somebody.
You got a dad in a minivan withkids screaming in the
background.
What we can do is, and we wereat 0.6 employees per store.
And I think that number isdropping because we have a voice
call center system now that'squickly replacing calls in our
agents.
But last we measured, we're 0.6employees.
We're very efficient.

(01:01:18):
But that enterprise softwarelets us get to a very good
customer satisfaction.
Maybe not as high as the REITs,but it's close.
But there's nobody else in thisquadrant.
The REITs are over here becausethey're operationally
inefficient.
The mom and pops are over herebecause they're bad customer
satisfaction.
There's nobody else.
in this quadrant right now.
So we can buy from somebody hereand take it here.

(01:01:38):
There are some operators who areneither good customer
satisfaction or operationalefficient.
Those are the best to find.
But if I draw an analogy toretail, we're like Dollar
General.
If you have a REITs Walmart andwe're Dollar General, you
literally built them next toeach other.
Everybody go in the Walmart.
I get that.
They have more selection thanthe Dollar General.

(01:01:59):
So you find the Dollar Generalsout in the little markets and
Dollar General kills the old momand pop general store that's
been out there because DollarGeneral's got that pricing
power.
We are equally weaponized, butjust with customer satisfaction
instead.
And so that's how we're hittingthose returns.
And so like, if you just takethat operational component, if

(01:02:21):
you go back and take our fundfunding, you can in fact check
me on this on Precoin, which Ithink they just got bought by
BlackRock, but they trackcommercial real estate funds
amongst other funds.
But you can look up 2017commercial real estate funds Our
first little$10 million fundfinished about eighth out of all
funds started in 2017.
And we hardly knew what we'redoing at that point.
We're just a year into it.

(01:02:42):
Our 2019 fund finished first inthe country of about 50 funds.
We beat Apollo, Bain, Woodpark.
I mean, everybody.
So it's proven to be a highlyeffective model.
And then the other thing is justdata science.
We've gone to great lengths tobuild out, I think, the largest

(01:03:02):
repository of self-storagefacilities.
We believe there's 63,000 ofthem in the country.
We track them on 150 metricsgoing back 15 years.
We use machine learning andwe're able to come up with a
predictive rental rate basedupon our last 10 years of
operating history.
So we know if we buy this store,this model will tell us what

(01:03:22):
rental rate we'll achieve withinabout$8 is our confidence
interval.
And so, you know, if we see astore that's getting 60 and it
says we can get 120, that's thestore I need to go buy.
At least out of the 63,000facilities, which ones I would
impact the most.
And so, you know, we know whatto go by.
We know how we're going toperform once we get it.

(01:03:43):
And, and there's so many ofthem.
I need 25 of them for a hundredmillion dollar fund.
And there's 63,000 of them outthere.
There's, you know, 6,000 in themarkets that we want to go buy
in that would give us that kindof lift.
And that's the crazy thing isthat two thirds of all the
storage deals out there arestill owned by mom and pops.
They, mom and pop owns one ortwo stores.

(01:04:04):
It's probably not even theirprimary line of business.
They probably don't even have awebsite.
It's just, it'll be the good olddays.
We'll look back in 10 years andsay, man, I wish I'd done more
storage deals.
Absolutely.

SPEAKER_02 (01:04:15):
Well, the other thing, the other trend I'm
noticing that I think isfascinating is because of the
vertical integration and becauseyou guys have the systems built,
you can outperform comparablysized competitors who are
probably kind of going for anolder, old school way of
approaching it.
But the beauty of it is the bigboys are not buying the

(01:04:37):
properties you're buying, right?
Because they're probably toosmall for the mega funds, which
is, I think, I call it like themid-market sized buildings.
I think the same in multifamily.
Like I don't want to be in the$150 to$250 million space
because I'm competing withGoldman, Starwood, you know,
Blackstone.
you're competing withcompetitors that are less
sophisticated.
The thing is, you guys arebringing an AK-47 to a knife

(01:04:59):
fight because you can buy a$10million facility and eke out
much better performance thanyour competitors, and you're not
competing with Apollo or Goldmanor Starwood.
None of these guys are going tobuy that building because they
have to deploy.
So that leads to the questionof, which is always the
difficulty when you're a fundmanager, and I'm curious how

(01:05:19):
you're thinking about it, is,and I've known some really
successful venture capitalistwho had funds around the size of
yours and they intentionallycapped it.
They're like, we're never goingto go beyond this size because
the inevitable push-pull islike, you're successful, you're
crushing it, your investors likeyou, and they probably want to
give you more money.
So the inevitable push is like,well, let's go bigger.

(01:05:40):
Let's go bigger.
Let's get to a$500 million fund.
Let's do a billion dollar fund.
But then your returns will startto tank because now you have to
deploy$100 million per dealinstead of$10, right?
How do you think about that?
Like controlling your own egoand want of a larger and larger
fund, which is kind of whateveryone reaches in that
crucible

SPEAKER_01 (01:05:59):
moment.
I'm sure you're there or close.
So thankfully, we're pretty wellpositioned that there's a lot of
runway left, right?
So I've got, you know, we'veidentified 6,000 stores.
If we bought them, we can hitthe same types of returns that
we've gotten before.
And if I only need 25 for a$100million fund, I can do many$100

(01:06:19):
million funds before thatopportunity dries up.
Right.
And the way though that, so thenbecomes a thing of velocity,
right?
It was one thing to get$10million out the door as 50 and
100.
But if I'm trying to get 200 or$300 million out the door, I
need a way to catch more fish.
And so what we've done is we'verecently taken the data science

(01:06:40):
system and rather thanleaderboarding out the worst
performing property, we've builtresolution logic to figure out
who owns the properties andwe're looking for commonalities
of ownership.
And it's hard because they mighthave main street stores and then
they might have country roadstores.
They're not branded the samebecause they're not a good
operator.

(01:07:01):
They should leverage branding.
But they may have 20 stores.
And so now this leaderboards outthe worst operators in the
country.
I won't embarrass anybody andsay any names out there, but now
I can go after a 20 or 40 or an80 store operator that might be
a$100 million transaction.
And now without sacrificing inthe upside economics.

(01:07:23):
But you're right.
At some point, the opportunityis paper.
And we're also a little bitfortunate.
The unmanned model scales reallywell.
All of our employees are herelocally.
So we have some out at theprovince doing light
maintenance, but generally we'revery centralized.
Are there any,

SPEAKER_02 (01:07:43):
and I think we're close to the end of our time
here, Brad, and I want to bemindful of everyone's time, but
are there any risks to theself-storage industry that
you're seeing on the horizon?
Like, Obviously, one of the bigones was the lack of single home
transactions was sort of hurtingthe self-storage business
because that's a big catalystfor people to use self-storage.

(01:08:03):
Is there an oversupply cliffcoming?
Is there a risk to the thesis?

UNKNOWN (01:08:10):
Yeah.

SPEAKER_01 (01:08:12):
I think there always is a risk.
You know, I don't, I don't thinkwe should ever, we have, we have
a couple ideas how to possiblyreally disrupt the industry that
I'm, I'm going to selfishly keepclose to chest here.
So I'm going to, but, but, youknow, you always have your
market risks, your, your, yourclassic ones of, you know, dot
credit, you know, that we'vebeen in a funk, 30% of our

(01:08:35):
renters are home buyers.
And so they've been generallyoffline and we've, we've had a
really tough last two, threeyears.
Nevermind the fact that interestrates are high.
It's been like a double whammy.
So we see a lot of our peers,you know, giving properties back
right now.
But yeah, I think there's waysthat, that the ways people
interact with storage and thehabits that they use storage

(01:08:57):
could change with technology.
So, you know, It's like BillGates said, you know, nothing
happens for three, four, fiveyears.
And then in 10 years, the wholeworld's different.
So like I'd say, you know, inthe near term, I don't think
much of anything is going toreally disrupt self-storage.
We tend to be very recessionresilient.
But, you know, 10 years fromnow, you know, it might look

(01:09:18):
different.
You see little groups likeLutter and stuff who are Airbnb
of types of self-storage aremaking inroads.
But, you know, I think there'sways it could be disrupted.

SPEAKER_02 (01:09:31):
Yeah.
Well, if anything, I think yourmodel will dovetail well with
the AI revolution that'shappening right now because it
was only like you mentioned youknow reducing personnel and call
centers thanks to AI I mean it'slike you're well positioned to
take advantage of that trendright now which not everyone can
say so that's huge so well Ilike to end every interview with

(01:09:54):
a critical question which iswhat is your top book
recommendation for anyonelistening like if you had to
pick one book One book thatchanged your life and you're
like, that's the one.
Because, you know, selfishly,I'm just always looking for my
next read.
So I really want to hear what'syour book.

SPEAKER_01 (01:10:11):
God, do I have to give you just one?
It's all right.

SPEAKER_02 (01:10:14):
You can give me more.
But what's the, what's, yeah,sure.
What are the top three

SPEAKER_01 (01:10:18):
most valuable books?
I'm going to categorize it outfor you.
Enjoyable reads that establishgood business values.
My favorite two books are PoorRichard's Almanac by Ben
Franklin.
Thing's tiny.
It's just a little thing, butjust, it's just, It's just like,
and if you ever read that, thenyou, you, I love the guy,
Charlie Munger, you know, poorCharlie's almanac.

(01:10:39):
Uh, it's just a hilarious readand it, you can't have better
values, uh, in the businessworld from a long-term
perspective, which I endorsefrom Charlie.
You know, if you really want toget deep down into like,
understand where, you know,where I come from on the macro
picture, you know, like, likedeath and money, uh, the death
of money, the rise and fall ofnations.

(01:11:01):
Um, and, uh, Dalio's big debtcrisis.
Those three, I think, just do agreat job of framing the
consequences of where we'regoing with the fiscal spending.
But if I had to say one, Ithink, honestly, probably made
the biggest difference in mybusiness and just my life.
It's called the new personalityself-portrait by John Oldham.

(01:11:28):
What it does is it takes the 14DSM personality styles.
and puts it into a perspectivethat's easy to understand.
And man, it was like, it waslike a tremendous unlock to
suddenly understand, like I'm aconscientious personality style.
You know, my wife is, is, well,let me not talk about my wife.
That's probably not a good, goodtaste.
But I, you know, we've got somepeople that are devoted.

(01:11:51):
We've got others that arevigilant.
And so, you know, like, like me,I think people are gonna respond
like me.
Like I, you know, push a buttonand for me, blue light comes on.
Like I push somebody else'sbutton, red light comes on.
Like, you know, I'm, expectingBlue Light.
And I'm like, I didn't reallyunderstand why.
And I just can't tell you howprofoundly impactful that book
was on my way to interact withthe people I work with and also

(01:12:11):
at home in such a positivemanner.
Thank you.
That's awesome.

SPEAKER_02 (01:12:17):
I've read some of those books, Poor Charlie's
Almanac, Poor Richard's Almanac.
I 100% agree with you.
Fantastic.
I recommend Poor Charlie'sAlmanac to almost everyone I
talk to.
I'm like, you got to read it.
Poor Richard, also great.
But I mean, and obviouslyCharlie Munger was a huge Ben
Franklin fan, hence the namingof the two, but I could not
adore a businessman more than Ilike Charlie Mugger.

(01:12:38):
So that's fantastic.
So Brad, thank you for beinghere.
Where can the listeners findmore about you?
And I know you guys are raisinga fund and this is obviously not
a solicitation to invest, but ifthey wanted to explore, you
know, working with 10 Federal orparticipating in your guys'
upcoming fund, where do they go?

SPEAKER_01 (01:12:57):
Yeah, just reach out to me, brad at 10federal.com,
the tens, the numeral one zeroBut Brad at$10.com just emailed
me.
We're an open book.
You know, we, you know, and thisis good for investors to know.
I will tell anybody that walksthrough this front door how
we're doing the automation.
I'm a huge believer in theAmerican dream.
I want to pay it forward.
I want$10 to be more than just,you know, an opportunity for,

(01:13:20):
you know, the people inside ofhere to make money.
So I can't tell you how manypeople we've enabled to also do
automated operations, returntime to their families and
things that sort.
But, you know, separate fromthat, yeah, we're, you know,
raising a fund and happy to tellpeople all about that too.

SPEAKER_02 (01:13:36):
Amazing.
And I will put it in the shownotes.
We'll include your email andyour website.
So the listeners will be able tofind it.
And with that, I just want tothank you, Brad.
This was an amazing interview,even better than the
pre-interview, which I said weshould record it, but this was
better.
So fantastic.
Thank you for joining us.
Thanks for taking your time.
I'm sure the listeners aregratified by this amazing
conversation.

(01:13:56):
So many great takeaways.
Thank you.
And I want to leave it off withour classic timeless line, which
is think well, act wisely, buildsomething timeless.
Thank you everybody for beinghere.
And thank you, Brad, again forjoining us.

SPEAKER_01 (01:14:10):
Thanks for the opportunity.

All Episodes

Episode Transcript

Popular Podcasts

Stuff You Should Know

CrimeLess: Hillbilly Heist

Dateline NBC

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}From $500M in Called Loans to Self-Storage Empire: Brad Minsley's Vertical Integration Playbook

Episode Transcript

Popular Podcasts

.css-r6mb8g{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:1;overflow:hidden;}Stuff You Should Know

CrimeLess: Hillbilly Heist

Dateline NBC

All Episodes

From $500M in Called Loans to Self-Storage Empire: Brad Minsley's Vertical Integration Playbook

Stuff You Should Know