Self-Storage Strategies That Could Skyrocket Your Wealth with Fernando Angelucci Part 1

When you go out and you buy a value add deal or an expansion conversion, ground up development, the investors in the debt that you initially place on that type of asset is not the investors in the debt that you want on a long term hold strategy.

Welcome to truly passive income.

I'm Neil Henderson.

And I'm Clint Harris.

And I'm Levi Hemingway.

We are pleased as punched to have my good friend on here, Fernando Angelucci.

He's the CEO of self storage, syndicated equities.

Fernando is a seasoned investor who transitioned from engineering to real estate, scaling his business to over $220 million in self storage investments that may be out of date as of today, but we'll ask him.

He's a global traveler.

He's leveraging income arbitrage while running his operations seamlessly across multiple countries.

Fernando, welcome, my friend.

Thanks for having me.

I'm excited.

Absolutely.

So I first met Fernando at a self storage mastermind on raising capital in Las Vegas, Nevada, which was my hometown, not his hometown at the time.

So, yeah, congratulations.

I've got a quick story about Fernando.

At the time, Fernando was doing wholesaling.

He was doing Airbnb arbitrage.

Just a mover and shaker, but he just bought his first self storage facility.

But he's still kind of learning the ropes.

There's a whole bunch of us there.

Paul Moore was there from Wellings Capital.

We're all kind of like, learning about self storage.

And my experience of Fernando was it was sort of like we're all standing there going, wow, this self storage thing is really cool.

And then we all turned around and there was this cloud of dust of Fernando going off to buy, like, nine self storage facilities in the next two years.

That's pretty accurate.

First year we bought one.

The second year, we bought eight.

The next beer we bought another twelve.

So then scale it up.

Ever spent?

Yeah.

That's amazing.

I can't wait to talk about that.

In fact, because of your story and your background, we brought in Levi.

So Levi Hemingway's founder of Nomad Capital, along with his dad, one of our general partners.

Construction background does an unbelievable job.

And it's one thing to listen to a podcast and get a lot out of it, and a lot of times we do that, and people in the office will listen back to podcasts that we recorded.

It's something else to be there live and be able to ask questions and dig in.

So we're excited to have Levi here with us as well.

So thanks for making room for us.

Let's talk about velocity here.

You just went from one and then you went to eight.

What are we talking about here?

Like, where's this capital coming from?

How did you solidify a business plan that fast and put systems and operations in place to create that kind of velocity?

Yeah, great question.

So I'm sure you've heard me, Paris before, and so many people have.

There's this wonderful book called Traction by Gino Wickman that helps you basically create an operating system for your company.

Cause what we noticed is a lot of business owners, or when they're starting out, just kind of flying by the seat of their pants.

And that's what causes you to get bogged down, because you're not actually focused on working on the business, you're too busy working in the business.

So how do we start delegating and elevating from the roles that are below our, say, hourly rate as a CEO so that we can.

Decided to get out of any habitation based real estate.

I didn't want anybody living inside of my investment.

Just caused too much liability, too much uncertainty.

And then with kind of the political climate, we've seen this growing trend where the government is inserting themselves into housing as a necessity and capping rent, not allowing you to collect rent, as we saw during the COVID pandemic time.

But at the same time, those landlords, they still had to keep paying their mortgage and they still had to keep paying their property taxes.

So they were the ones that were losing.

So decided to exit our residential portfolio over that two year process and then switch into software.

The very first thing that I do anytime I go into new asset class is I run it myself.

Before getting third party managers, before getting consultants, I need to know that the people I'm hiring are actually hitting metrics that are reasonable and not just kind of phoning it in.

Right.

And if you never run your own self service facility, you don't know if your property manager is doing the appropriate thing.

Same thing, Levi, with, you know, the construction side.

If you've never GC to your own project, you don't know if your GC is doing the right thing or if your CM is doing the right.

So after about six months of running our first facility, which was, you know, it's close to us, maybe a two hour drive in really bad Chicago traffic.

We figured out, okay, we set up the system.

We treated this facility as if we had to jump on a plane to go see it.

And that allowed us to start looking into other states that were more favorable for running businesses.

So we left Illinois, and then we started doing things in Indiana, Iowa, North Carolina, Tennessee, you know, the really good states for self storage.

At that point, you know, we very quickly ran out of our own capital, and that's when we realized, hey, we actually need to run a whole separate business.

And that entire business is just a capital raising business in and of itself.

It needs its own set of staff, it needs its own set of fulfillment, own marketing.

And that's what really helped us go from the first couple handful of deals to scaling up to over $230 million storage in less than six years.

Unbelievable.

Yeah, that's incredible.

I mean, congratulations.

I love that.

I mean, first of all, I love the shift from your journey from the asset class you were in to tenants occupying your space and seeing a lot of risk in that.

Obviously, it's a needed asset class.

But I like that forward thinking that I want to be able to control.

I don't want other people to be able to control my business business.

And so congratulations on that.

That's an incredible journey.

We also, so when we started no man capital, we read traction as well, implemented it.

That has been a huge game changer for our business.

You know, we operate our level ten meetings and all that good stuff off of it.

It gave us a lot of structure to, hey, let's put in the systems to scale this.

Let's look forward a few years.

And so, yeah, traction was a huge part of, I feel like, our growth and success as well.

So it's funny, I had a similar background.

So I was doing Airbnb arbitrage, using that to get money to buy small multifamily and convert them to Airbnb.

Wilmington, North Carolina.

So I live down at Carolina beach right down the road, and I got completely burned out on tenants.

I was like, man, most people, instead of having one tenant a month in a property, ive got eight to ten tenants a month.

And theyre multifamily property.

So its a bunch of quadplexes and a duplex.

And I just got to the point where I was like, man, I replaced my income and achieved a level of financial freedom, but I did not get time or location independence.

The difference is, Fernando, youre a global world traveler, and I was stuck there with a phone in my pocket answering questions, right?

So I had to make the switch.

And when I asked, I looked around, I said, what are the three asset classes that the successful people in that are living the life that I want?

It was three things.

It was hard money lending and note lending.

It was mobile home parks and it was storage.

Well, I didn't have any money to lend.

I had no interest in mobile home parks because I was already burned out on tenants and that left storage.

And I was like, there's no kitchens, there's no bathrooms.

I'm renting someone a box of air.

That's amazing.

So when you got in, it was a very good time.

Tell me about the type of assets that you were going after, where you're raising your capital from, and what kind of deal structure have you put together, or did you put together then, and has that evolved over time?

Yeah, it has definitely evolved.

You know, like anything, you first have to go through the motions to understand, hey, is this the right way to do it, or is this the wrong way to do it?

And then you start leveling up the people around you and you start seeing how their, you know, say, raising capital, restructuring deals, and that gives you insight on where you want to go if you want to go to that level.

So we first started, like I said, we started with our own capital and strategic joint ventures.

So it was all GP money, basically.

There was no LP's involved.

Then very quickly, we ran out of that GP money and we realized, hey, we don't need to give away so much ownership to have a team of nine owners on a deal that are all active.

That's just unnecessary.

So very quickly we decided to start scaling up, and with that came the need to start raising limited partner capital.

And theres kind of a couple levels that you hit that I always tell people when youre starting out in the capital raise, it came first.

You hit your friends and family.

These are the people where they dont really care about the deal.

They know, like and trust you and theyre going to invest in you, not the deal.

Once you get experience of those folks, then you start going to the friends of friends and friends of family that heard about you at the dinner table or somebody else was chatting about a deal to invest with you very quickly.

Those people also tap out, unless you're in some very affluent circles, which I was not, you tap out of that money very quick, but you use those two levels to build up a really good track record, opening, close some deals.

And when I say open and close, that means, hey, you've raised the money, then you've completed the business plan and you've given the money back.

So it's not deals in process, it's deals that have already closed and show a proven track record.

Then you take that and you start going to the retail investors.

These are going to be your high net worth, even potentially other business owners, other even real estate investors.

I had a lot of real estate investors in different asset classes that wanted exposure to self storage.

Those guys, they don't know you.

They may not like you right now.

That's part of the marketing strategy that you have to put forward.

But what they can look at is here are true deals that have been open and closed.

Here's the return rates, here's supporting documentation that shows this is all legit, right?

Then you can start raising capital from those guys.

But where do you find those people?

You can do it the hard way, which is word of mouth, setting up one on one meetings, that's extremely difficult.

We, instead of doing a push marketing campaign, we kind of do more of a poll marketing campaign.

We want them to come to us.

So one of the very first things we started to do is a multi channel marketing approach using podcasts as the base foundation.

Do a one long format podcast like we're doing right now, 1 hour, 2 hours, 3 hours, what have you.

Then you clip, you know, obviously the long format stuff is going to go on YouTube, unedited or uncut.

But then you clip that one to three hour podcast into small bite sized portions for the social media world.

So, you know, TikTok, 30 seconds or less Instagram, one to three minutes, photos, quotes.

You have Facebook and LinkedIn, which can go a little bit longer format, maybe ten to 15 minutes.

And then you have YouTube, of course, right?

You use all that to funnel all of the backlinks back into your website where there is a deal portal.

In that deal portal, you want to have some exclusivity.

So if somebody wants to see your deals or wants access, they don't just get access right away.

When they first request access, they have to schedule a phone call to talk with me in person so I can vet them out to see if they're the appropriate type of investor.

Because people think that all money is good money.

That is not the case.

What I found out there is capital that is just not worth your time and not worth your headache.

It's that 80 20 principle, right?

20% of your capital is going to cause 80% of your headaches.

I'm the expert.

I'm the one that knows how to do self storage.

If you are not a self storage operator.

You're calling me every day trying to tell me what I should and shouldn't do on this deal.

I'm not the sponsor for you because clearly you think you know more than me.

So you shouldn't be giving me money.

You should go do it yourself.

I see you guys smiling and looking at each other.

It's hard sometimes.

But I have fired investors.

I have called them and said, you are not worth my time.

And I literally wired their money back after a couple months being like, here's plus whatever time of money, it's just not worth it.

Because like you said, I don't want to create.

We're business owners.

The whole reason we're doing this is so that we can do what we want, with whom we want, whenever we want.

If we're just creating another job for ourselves, then we're not doing a service to ourselves and our loved ones, right?

That strategy of using the podcast, breaking apart into bite sized pieces that goes across social media, every one of our 1 hour podcast, we can break into roughly 700 pieces of media content that can be consumed.

Jeff.

So if you look at my social media channels, there's still stuff that's coming out from podcasts I was on a year or two ago because we just have so much that is coming out.

So that helps with the marketing game.

But then the great part is, remember we were talking about that?

Hey, do they maybe like you?

Do they maybe trust you?

It's funny, because when you're routing the Internet with everything about you, your past, your history, your friends, your strategies, by the time that investor gets onto that phone call with you, I can't tell you how many times they've already jumped on the phone.

It's like, Fernando, this is crazy.

I know we've never talked, but I feel like I already know who you are.

Because my whole story, my whole history is all over the Internet.

Just type in Fernando Angelucci into Google, and there's literally hundreds of hours of content that you can watch, that you can get to know who I am from a personality basis and from a strategy basis.

So that helps.

That's usually where most people stop, and I don't blame them.

If you want to get to the next two levels up, you can use those retail investor experience to get into the sub institutional and institutional worlds.

The difference is the retail investors, they are people that are extremely busy.

They have some money that they want to invest, but they don't have unlimited funds.

Right.

But they're willing to allow you to structure the deal in a way that makes sense to you and make sense of the deal once you jump from the retail investors to say, like the sub institutional world, which I would consider family office capital.

Family offices are, you know, typically a wealthy family that had some type of liquidity event.

Let's say they sold a manufacturing company for $300 million, and now they're like, what do I do with this money?

So usually what they'll do is they'll hire a, an in house investment team, or they'll join what's called a multifamily office, where it's multiple high net worth families that are all using the same investment team to invest on their behalf.

Now, you have people that, how do I put this in a proper way?

The golden rule, he with the gold makes the rules.

And because they have the ability to cut a check to cover your entire equity stack, they now demand much more favorable economics in their side, basically, where you're taking all the risk and they're taking all the profit.

Then one step above the family office, the registered investment advisors, RiAs, and the small wealth management groups, is your truly institutional capital.

And to get to that, you need 20 plus years of open and closed deals, basically never losing money, basically never going below projected returns.

And these are going to be your pension funds, your sovereign wealth fund.

Literally, countries are investing with you.

That's a little bit harder for our space and self storage, because those types of guys, they want to cut a $100 million check, but they don't want to be over 25% ownership of the capital stack, unlike multifamily, where you can go do a $400 million multifamily deal, there's no $400 million sell store deals, unless you don't build up a portfolio.

So the problem, and then again, once you go up to that truly institutional level, then the economics are way in the favor of the LP's and out of the GP side.

So, where we have found is that we like to float in between that retail investor.

Obviously we still have friends and family that invest.

And then the lower end of the sub institutional, smaller family offices, anything less than say, like $500 million assets under management, those are the typical people that we find.

They let us be the experts, they allow us to have some participation in the upside while we're taking the risk.

They may even be strategic partners, signing on debt with us, things like that.

A lot to unpack there.

Yeah, so much to unpack there.

Can you walk us through your early years there, when you started that transition, right, you went from one facility the first year, eight facilities and then twelve facilities.

Right.

So you're obviously, you're having to source capital and you're going through those motions.

You know, the friends and family and then the friends of friends shed some light on those early years when you didn't have that track record yet.

Like you're building out the track record.

So you bought these assets, they're performing, they're, you know, you're increasing the rents, you know, cutting expenses, you're building out the business plan and yet you're still raising capital for the next deals.

So how are you able to overcome maybe some of those objections from investors that said, hey, heres a guy who is newer to the self storage space.

You know, hes doing the business plan but he hasnt completed the business plan yet.

Expand on that as much or as little as you can there.

But help us unpack those challenges you had and how you maybe were strategic or overcame them.

Trey.

Yeah, Levi, great question.

So theres kind of two things here.

First is using your track record from the other asset classes, right.

So what I would tell people is just because this is a new asset class doesn't mean I'm not a good business owner, I'm not a good business builder.

It's all the same concept.

It's just a different box.

So I'm still going to go out and get third party feasibility.

I'm going to bring in vendors that have a lot more experience than me.

So in the beginning, a lot of my deck would be like, look at my team.

Look how amazing my team is.

And I'm just the one that order back the team together.

Right.

And then I could also point, hey, heres all the single family deals, all the multifamily deals we did.

Heres all the hard money and fix and flip and Airbnb, etcetera.

The second thing is when we truly got into, lets say the shift from buying cash flowing assets is buying cash flowing assets.

If youre buying a multifamily or self storage, for the most part, underwriting is pretty much the same.

You can find vendors that are pretty much the same to do feasibility for you, etcetera.

The big shift for me on building the team is when I went into ground up development.

I have never built a three story class a ground up development deal before.

The closest I did was single family homes.

Thats literally an order of magnitude smaller.

Im buying a house for 250, putting 150 in, as opposed to buying a piece of land for 1.3 and putting 12 million in way different economies of scale here.

So that is when I decided actually to do a strategic joint venture.

So I actually brought in a mentor of mine who had multiple years experience, specifically in the ground up development space as well.

And then when I went to go raise capital, I said, look at my partner, look at how amazing his track record is.

Or even better, if you want to obfuscate it a little bit, you say, here is the track record of the entire team, when 95% of it is from your friends.

So this is something that I learned.

The colloquial term for this is borrowing credibility.

So something you can do, and I teach people how to do self storage for free.

I don't charge for classes or anything, but I always say, listen, if you ever come across a deal that maybe is too big for your britches, give me a call.

I'm more than happy to lend my balance sheet, my liquidity, and my track record to help you get financing and help you get equity on that.

So it was a very interesting transition, but it wasn't as hard as I thought it was going to be.

The harder transition was going from the friends and family to the retail investors that you have no experience with.

Nomad, we talk a lot about, and I've heard you talk about this as well, about sort of the four buckets, the four strategies of self storage, which is you've got the operational turnaround where you're just buying an existing facility that's maybe mom and pop, that's maybe mismanaged.

It's a lighter lift, probably not as great a return.

And then you've got the expansion opportunity.

It's lower level value add.

You're buying an existing facility, it's already cash flowing, but it's got some extra land.

You're able to build another building.

And then you've got conversions, which I think you've also done as well.

That's our bread and butter.

Then you've got straight up ground up development.

If I recall, you've done all four.

Correct?

Correct.

And I would actually add one fifth strategy to that.

And you gotta realize it's all a tool belt, right?

You have these leads that are coming in, you wanna monetize every lead.

Just because it's not a good deal for you doesn't mean it's not a good deal for someone else.

So then you lock those up under contract and you wholesale them to other people.

And that re ups your coffers for down payments, for suit costs, for marketing dollars.

So I'd say there's actually five strategies.

We'Re taking that one that's come up.

In conversation so much over the last couple months because, you know, these are development deals for us.

Right.

So it takes a year to build it out, then it's going to take a couple years to get it stabilized.

So there's this void where the investors are earning a backcode, preferred return, but there's no cash flow coming in.

Right.

So how do we recapitalize?

That's a conversation that has come up a lot.

So we may be picking your brain about that off on another call as well.

I want to talk about the way that you have moved forward with your portfolio because you've had some exits, you've had some large exits.

Yeah.

And a lot of our mentality is that self storage is a great asset for a long term hold.

It's very inflation resistant, pandemic resistant, recession resistant.

What really matters is about a seven mile radius so you can find these little micro economy pockets that you just really want to hold forever.

Yeah, but the reality is a lot of times with the operational turnaround or whatever you're doing, there's so much equity in the deal that you can't access that at some point it likely makes sense to have a liquidity event, either cash out, refinance if the market's right, but more likely a sale.

Right.

So talk to me about you went from one facility, then eight and then twelve, and you sold a large portion of the portfolio at one point in time.

Talk to me about your mindset when you're looking at a property as to what you think the best thing is to do with that property.

And also, how did things change for you after you sold your first property in terms of your relationship with investors?

Steven?

Yeah, great question.

So Clint, the way I look at this is you got to look at your cost of capital.

Okay.

So yes, self storage is a great long term hold asset, but the capital you have underneath it, the ones that you use to get through the value, were not buying stabilized deals.

You and us were not some moneybags life insurance companies.

Thats just buying forecaps because its more stable than investing in the stock market.

So when you go out and you buy a value add deal or an expansion conversion, ground up development, the investors in the debt that you initially place on that type of asset is not the investors in the debt that you want on a long term hold strategy.

Right.

Typically if you got a value add or some type of construction on the debt side, youre looking at floating rates and now youve got risk from an interest rate perspective and then the investors that go into those types of deals, theyre looking for double digit returns.

Theyre looking for anywhere between mid teens all the way up to low twenties, depending on the risk of the project.

Those type of IRR numbers are not sustainable for a long term hold.

So you have two options.

You can either refinance into some permanent debt, like say a ten year CMBs loan or even longer term life insurance loan.

And then the equity that you have on that, if you still need to retain equity, you need to move more towards like the coupon clipper style investors.

They're okay clipping a 6% coupon per year because it saved them 30% in taxes.

That's the type of investor with that being said, my strategy is we don't really have any long term hold deals with investors.

What I do is I do the first appreciation play, whether it's any of those strategies, and then typically sell those to realize that equity so that I can eventually go off and buy self storage facilities with no investors and just debt.

Or ideally once I'm old and tired and I don't even want to deal with that side.

Just all cash, no debt, no equity, and just truly just treat it like a cash cow piggy bank.

Right.

The reason you look at that is if you look at are you guys familiar with the Laffer curve or the curve of diminishing returns?

When you look at a deal, especially when youre analyzing it from an IRR basis, internal rate of return, because its a time based value system, you see that typically on self storage deals, after about three years on a value add or a small expansion, or up to five years on a conversion or ground of development, every additional year that you hold that asset, that return that youre getting is actually much lower than the opportunity costs of taking the equity and investing it into a new value add project where you can push on a ground up deal, you build it for 10 million and in three to five years its worth 18.

On a stabilized deal you buy it for 10 million and then in three to five years its worth 12 million, maybe whatever inflation rate is, I guess.

So.

It just doesnt make sense right now to build a cash flowing long term portfolio for me and the investors that I currently have access to.

Preston.

And the way I describe what youre talking about is youre essentially stacking lack for curves on top of each other.

Or how thats perfect.

Yes, you got that return, that goes up here.

And once it hits that, where it starts decelerating, now you just exit, stack it on top of each other and just keep doing that, correct?

Well, I think it can be a very controversial topic.

You know, like to sell, to not sell.

You know, you see people on Twitter and all these spaces and they're like, man, you know, the only way to create real wealth is to never sell an asset.

And of course, you have both sides of the fence here.

And, you know, this is a conversation that we talk about internally because, you know, for us, our background was, you know, my dad, our fourth partner is, he comes from a background of developing his own projects and he still holds those assets today.

But that's a very interesting way of looking at that was before we started raising capital with Nomad and scaling to.

What we're doing now.

So, you know, part of that strategy is that's what got us here, but will it get us there, right?

And so, you know, we ask this question all the time because there is that magical day you get a co or you open the doors on the next building.

I mean, especially for ground up, the day you get that golden co, you've got an appraisal in hand.

That is, you've just created so much value, you've taken so much risk off the table for the next buyer, for the next group, for the bank.

And so thats really your golden ticket or thats your CEO.

Thats where you create so much of the value.

Preston and Levi, it doesnt have to be one or the other.

You could run both strategy at the same time.

So, for example, lets say you build up a portfolio of five to ten assets that you went through the value add process.

You sell off nine of them, you use that equity to pay off all your investors, pay off all the debt, and then you keep that 10th one, pay off the investors and the bank, but then keep the asset.

So kind of using the flip five to keep one, flip five to keep one strategy.

Because in the end of the day, I dont want to be the richest person in the world.

My biggest thing is I want time, freedom, and the only way to have time, freedom, and truly a low stress lifestyle is to have no one to answer to.

And unfortunately, everyone thinks that as a capital raiser, your own boss, but youre nothing.

The bank is your boss, and all your investors are your boss.

So how do you shift into a way where you can go gallivant around the beaches of Brazil without having to worry every day that everythings going according to plan and the easiest way to do that is to slowly start stacking assets that have no debt and no equity.

Preston.

Yeah, youre 100% right.

So that seemed like a good segue.

So youve done some deals internationally.

Talk about international debt.

Talk about.

Just touch on that a little bit if you can.

I mean.

Yeah.

So probably spend a whole hour talking about just that.

Yeah.

So just to set the record straight, I haven't done any deals internationally because of the issues that I have found.

So we are so lucky to be investors in the United States because of our stable economy.

Despite what the tv tells you, when you truly see what our economy looks like to literally every other economy in the world, even the other developed economies in the world, like, we are one of the most stable foundations across the entire planet.

So for example, were here complaining debt is so expensive and now instead of paying 4% on a ground of development, im paying 8% or God forbid, prime 8.5%.

But then you go to places like South America where debt is 3% and its not 3% a year, its 3% a month.

And to get that debt you have to put usually one times the debt amount in cash at the bank.

So you need a million dollars.

Great.

You give us a million dollars in a cd and you will pay 24% to 36% on that debt.

Right.

In addition to that, our inflation now is three ish, 4%.

Still a little high.

You have places like Brazil, for example, that if you put your money in a bank account, they pay you 13%.

Why do you think they're paying you 13%?

You think the bank is losing?

No, it's because the inflation there is at least five or 600 basis points higher than what the bank is willing to pay you.

So we did try to do a deal.

We tried to buy the third largest self storage company in Brazil.

It's a new emerging market, unlike say, the United States, where one in nine people use storage.

In Brazil, it's about one in 100 people use storage.

So as countries come up and become more wealthy, they look towards the United States because our biggest exporter is culture.

They say, hey, we want to be like american, so we want to buy a bunch of shit we don't need and we want to put it into a box and pay for that box and forget what we had in that box for ten years.

Right.

That deal just did not work out because of the debt that was required.

And then the returns that the equity investors, right, you're going to need basically equity investors from that country because trying to pull equity investors from the United States, which is the most stable economy to invest in, to be like, hey, we're going to go into a place where politically, I don't know, maybe the country decides to take our assets and nationalize them.

Or this is happening with, I mean, perfect examples.

If you look at any oil company and how they lose billion dollar refineries, Venezuela, Argentina, China, Russia, these are perfect examples of what happens when you don't have a stable economy that has rules, set rules to play by.

As an investor, it's been extremely difficult, but there is a lot of opportunity abroad.

The United States has over 90% of the self storage in the world.

And here it's ubiquitous.

I mean, you're in the middle of nowhere, Podunk town in Iowa or Illinois downstate, and there's three or four self storage facilities in every city.

It's always going to be in the main financial center.

So for example, Mexico, there's storage in Mexico City.

Basically only.

You go down to Brazil, you got Sao Paulo, Rio, Cody, Chiba, that's about it, right?

You go to the UK, you got London, you got Paris, maybe you go up into Canada.

They're a little bit more like us, so they already started buying a bunch of shit.

Their housing crisis is also really bad, even worse than ours.

So they have a little bit more across larger cities.

But it's nowhere like the United States, where anywhere you go there is storage left and right.

But that is a growing area and the returns are much better.

I'm going to be speaking a lot about Brazil because I've spent a lot of time there recently and have looked into that side of the world.

But for example, Brazil labor cost and material cost for anything produced in the country is extremely cheap.

I mean like literally one 10th, if not one 20th.

The cost of the US minimum wage in Brazil is like $130 a month, right?

So like you're going to get laborers that are willing to work for even less than that.

The expensive part though is the debt.

So you're paying 300% in depth.

That's where a lot of your operational costs ends up going.

Not so like here in the, you know, the United States, when you're going to go build up a ground up development, half of the cost is labor, right?

If not more, depending on what type of building that you're building.

Because you can get corrugated steel for $19 a foot, maybe $18 depending on how nice you're going.

That has been super interesting, but people have done it.

So, you know, the late Samzell, Chicago native, he owns the largest self storage company in Brazil.

Its called Guadjiqui, which literally means store here.

Theyre doing really well.

Clint, would you quickly share your Shanghai call with him?

Yeah, thats what I was thinking about when youre talking about international.

So I had a really funny event happen.

Its probably been two months ago now.

We had a fund to fund manager whos been really interested in Nomad that we met at the best ever conference out in Salt Lake.

And hes Chinese.

He lives in America, and hes got like 150,000 people on his chinese social media following.

And he specifically travels around?

Yes, I think so.

He's specifically focusing on finding us operators and trying to raise capital from chinese investors, give them a chance to invest into his fund that gets invested into us real estate.

So I did a webinar with him and scheduled it for, it was one morning here, one night there, something like that.

900 people on the call.

What I didn't think about is like, okay, I'm doing this hour long presentation, but it turns into two and a half hours because everything I say, he's got to translate.

So every slide I'm speaking, and it'd be like, I'll talk about a slide for a minute, and then he'll say like, ten words, and then I'll talk about a slide for 10 seconds, and he'll go off for five minutes.

And I'm like, I have no idea what's being said here.

But anyway, we stumbled through it, and the back half of the call, 900 people.

We had a q and a section, and I spent an hour explaining to these people that self storage was real.

They kept asking the same question over and over, and it was this.

It was like, hold on.

You're telling me that Americans own a house and then they fill it full of stuff, and then they go buy more stuff, and then they rent a building to put that stuff into the building.

And I was like, yes.

And they're like, I don't think you heard me.

Hold on a second.

Why don't Americans just get rid of stuff?

And I was like, look, I don't want to be here defending storage.

I don't use it myself.

We just own it.

Like, don't you want to hear about the returns?

Yeah.

And then you're telling me it was over and over and over.

So this is literally the same conversation I have in the last 18 months.

I've been in almost 20 countries, and every time somebody asks me what I do and I try to tell them it's the same reaction.

They're like, but why don't they just sell or give away this stuff?

It's like, because we don't do that here.

Yes, don't tell the secret.

I want to talk a little bit about, we talked your early days, your growth trajectory, everything you've accomplished there, your mindset, using traction to build that system out.

How did things change for you after you had your first liquidity event, and you're looking at that curve and you're deciding, okay, at this point in time, it's time to make a move throughout your career of doing this, where have your bottlenecks been?

And capital raising is really tough right now.

It was significantly easier a couple of years ago.

It's tough right now.

We just interviewed Travis Watts from Ashcroft Capital, and he said that it's about 60% down from where they were able to raise capital just over the last year or two.

There's a lot of headwinds that we're facing.

Was that ever a bottleneck for you?

And absolutely.

As you grew, how did it change after your first liquidity event?

And now youve got a solid track record of having sold.

What was your first sale?

Was it a property or portfolio?

And how did that change things?

Yeah, so I was telling you guys about that first deal I did outside of Chicago and Yorkville.

So that was the very first facility I bought.

Tiny facility, maybe 16,000 sqft, no utilities.

That means there was no lights, there was nothing.

It was behind a Dunkin donuts.

It wasnt even fenced.

It was like a crazy deal.

Very quickly built up a small portfolio of similar small assets.

Maybe the largest one was like 32 or 35,000 net rentable square feet.

I wanted to build this portfolio up larger to get above that 300,000 net rentable square foot range, or even ideally half a million net rentable square feet to go out to market.

But very quickly, I like to track macroeconomics in general.

I think everyone thats in real estate should do that, because it can give you some foresight into the future.

Id started to see these very hawkish statements coming out of the fed and talking about inflation rip roaring.

And I was like, theyre going to start raising rates.

Something that nobody seems to realize, or at least people that dont track this regularly, is you can go download the feds dot chart.

And it literally polls all the state feds or the minor feds and where they think rates are going to be on a quarterly basis for the next three to five years and all of a sudden Im seeing dots go up, up.

And Im like, oh shit.

So I was like, I guess we need to sell now.

So I went to my partners and I said, guys, we need to go.

I know not all these deals are completely done with the value add, but were going to get more money if we sell now at a six cap because of where interest rates are and give up a little bit on value versus selling two years from now at an eight cap but fully stabilized.

Right.

So that was our first exit.

It was a portfolio of ten properties all in one.

And it was, I mean, it was a wild experience to one day just open up your bank account and see seven plus figures just sitting there and it's like, oh, this is my portion of the profits.

Feels really nice.

Thats when I actually decided to first say, hey, you know what, maybe its time to start traveling around the world and see if I can do this remotely.

But the better part about that is it allowed me to start raising capital so much faster because I had something fresh that came out.

I said, heres the track record.

Not only do we say, hey, heres what we bought for, heres what we sold, but on each individual deal we said next to the track record sheet, it said we bought this deal because of X, Y and Z.

Heres where we saw the value.

Heres what actually happened.

We bought this deal because it was in a market that was undersaturated and the rents were 60.

All the stuff that you put on the capital raising presentation you do, you should also put on the track record sheet once youre done with the deal because it helps the investors, the retail investors, get into your mindset and see how do they analyze these deals.

How do they mitigate downside risk?

How are they going to protect my investment?

Not, oh, they just happen to throw some money in the market and they made money on it the last ten years.

In this 0% fed rate economy, you could piss in the wind and make money.

It was crazy.

A lot of people that had no business getting into our industry, got into our industry because it was just so the winds were at your back.

You could make money doing basically anything, buy an asset, hold it for two years and sell it, and you made a profit.

Ridiculous.

Having that track record was huge for us.

That allowed us to now go to this list that we had just started cultivating using that social media strategy.

Just do one quick email blast, everybody.

Just wanted to update you with where we've been.

We just had a large exit.

Here's the exit we blasted all over our social media and that started to really open up the wallets to invest into the deals.

These were the guys that, they were curious to get involved, but they weren't really sold yet on the team or the previous track record with different asset classes.

They wanted to see a self storage track record that I did nobody else.

Right.

So that helped quite a bit and that allowed us to change our acquisition strategy quite a bit.

So before youre trying to pick up the stuff, when youre first starting out, you have limited funds.

You may not have the best relationships as far as getting pocket deals or wholesalers bringing you deals.

You pick up kind of the stuff that nobody wants, the stuff that has a lot of hair on it.

Its going to be small, its going to be hard to sell on its own once youre done with it.

Once we got out after that ten property sale, now people were bringing us 35 plus 50 plus thousand net rentable square feet, stuff that was really good and had an easy exit strategy.

This is the thing that I learned.

Every deal we sell, even if we do great, we always do whats called our post mortem.

Well say, hey, lets look at this deal.

What did go wrong?

What can we change in the future?

Or if nothing went wrong, what could have gone wrong?

And one of the things we realized is there's a lot of deals out there that look really good on paper.

You know, you're buying them in a twelve or 13 cap, but you're not looking at how you're going to get rid of this asset, like who's going to be the buyer?

Because you always want to go up one level when you're going to a new buyer.

I don't want to sell to other fernandos because other fernandos are going to beat me down and do super creative structures that I do right.

I want to go up to somebody on the next level of REIT, for example, where they don't have time to do that.

They just want a portfolio.

They have much cheaper cost of capital than me.

They can buy a deal at a six cap and double their money versus if I bought a deal at a six cap and sold out of six cap, I would be losing money because my debt right now is 8% and my equity is 16 to 22.

So my combined cost of capital is low double digits.

So I need to really push value.

That was a huge learning curve for us.

And as we started progressing through this, changing in the economy as far as easy money, to making it much more difficult to get leverage, we started to see, like you were talking about with Ashcroft, a general lack of enthusiasm to invest in equities, especially when the stock market was just exploding.

I mean, I think we saw like the first down day yesterday in like God knows how many months, right?

So that was tough.

So we ended up pivoting to buying deals that are much easier to get financed and much easier to raise capital from.

And so basically what that entails is a deal that kicks off cash flow.

Day one, you got to be able to hit the pref, but you still want to be able to have that good value add in there.

So our sweet spot right now is purchasing expansion deals.

If I can buy a deal that is, let's say 30,000 plus net rentable day one, but already comes with land that I don't have to rezone, that's a huge slam dunk for us, because now we just shortened down the time to get distributions to investors by like twelve to 18 months, depending on how long that zoning process is.

And then it also makes it easier to finance because now, back in the day when interest rates were a non factor, everyone's like, what leverage can you give?

What leverage can you give?

And banks would have a standard answer.

Now, the answer is, we don't know what leverage we can give.

We have to run a DSCR calc and you have to hit a one or a one, two, five by x date.

And whatever you hit by that date, that is what's going to push down your leverage to sometimes on these development deals, you're coming to the table with 50% down.

And if you have to raise 50% as equity at 16% to 22%, you're basically working for free at that point.

What's the point of you even doing the deal?

We can all say that we're altruistic, but we're doing this because we want to support our families as well.

So I need to make some profit on these deals as well.

So what we found is with these ground up development or with these purchase and expansion deals, you already have income coming in.

That makes it much easier for the bank to underwrite a construction loan.

And that income is going to offset the construction financing cost.

And when you go to your investors, you say, hey, instead of you having to wait typically for us.

Its three years to get a distribution on a ground up development deal, like 100% ground up.

Id be like, hey, six months were done with the expansion and im already able to start kicking out distributions within that quarter.

That makes it a lot easier for people to part with their money because theyre perceiving the cash flow as less risk.

Its already kicking out cash flow.

Theres also the story of this facility has been here.

It has an operating history as opposed to when you have to go to a ground up development or conversion, youre like, well, the feasibility says that its going to cash flow and these are the rates.

But you dont really know, right.

Everythings just a guess.

Even if its a guess from an expert, its still a guess because there is no true proven track record.

So those are the types of deals that have been way easier for us to finance, especially when you start incorporating some creative financing structures on top of that.

So most of the deals weve been doing now have some type of seller finance or seller equity contribution to them.

If its a deal that has construction, we say, listen, we can get to the price that you need to be at, but you need to be in the second position behind a construction bank.

Thats going to give us the cash and well structure that financing in a way that actually the blended, that service coverage ratio is actually lower.

Because if you can get, lets say, a seller to carry back 40%, thats not a hard ask.

A lot of people think seller finance means you have to go to the seller and ask them to carry 90% of the note.

Thats hard for a seller to swallow.

But if you say, hey, I can give you 60% of your money today, and then you get to earn interest on your other 40% as the bank to get you even higher profits over the next three to five years, thats much easier to swallow.

But to do that, im going to need a pretty good rate.

And so if you get a 4% interest rate on the seller finance piece and you have an 8% interest rate on the construction loan above, that blends down, call it to maybe like a 6.2, maybe even the high fives, and now all of a sudden you got deals that pencil really well for distributions for investors.

Listen, thats been fantastic.

I want to take a pause here and were going to break this episode into two.

This has been awesome, man.

Thank you.

I appreciate it.

And its like youre living out the roadmap that were trying to draw for ourselves parallels.

Wildly helpful.

And I really appreciate your time.

So, Fernando this is going to be a two part episode.

So I want to just say, first of all, thanks for sharing, man.

If any of our listeners have listened to this and they want to get ahold of you, what would be the best way for them to do that?

Evan?

Yeah.

Easiest way is just to hit me up on my cell phone.

If that is a little too forward for you, you can always go to our website, which is ssse.com, as you can see in the back here.

And that has easy ways to contact me or business partners.

You can see all of our track records, investment portals, all that stuff.

Great, man.

Thank you.

Before you move on, I'll tell you why it's a bold strategy.

So there is kind of the Apple physiology where if it takes more than two clicks to get to whatever you need on the iPhone, that wasn't allowed to go into the iPhone because they wanted to reduce friction.

So let's think about it with our investors.

If you got somebody that wants to give you money, do you really want to put a bunch of roadblocks in front of them where they first have to go to your website and they got to schedule a call and then fill out a form and then, you know, whatever, and then confirm?

Like, that's too much.

Like, if a guy is ready to invest money, the second they're ready to invest, they're ready to invest.

That second they want to reach you.

That second, they might start getting colder over time.

Same thing with sellers, right?

So if an investor wants to give you some capital, why not make it super easy for them to reach you?

All right.

My cell phone is.

All right, well, listen, thanks for sharing, man.

It's been great chatting with you.

We'll pick this up on the next episode.

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