Navigating Investing through Economic Cycles feat. Ryan Smith

Hello, future billionaires. Welcome back to another episode of the Invest Like a Billionaire podcast. We've got a really great episode for you today. This was an interview that we had with Ryan Smith. He's the co-founder of Elevation Capital, and it was a really fun conversation. I've known Ryan for a little bit of time and just really appreciate his perspectives. He shares a lot on, you know, what it's been like. He focuses on self-storage, mobile home parks, has been investing for a long time and kind of through multiple periods of these cycles. And so really kind of gives some great perspective on how to invest at different parts of economic cycle. He shares his perspectives on, you know, the macro environment right now and, you know, why he's not really concerned or even paying that much attention to the headlines with interest rates and, you know, inflation and recession, all these things going on and shares why. And then finally, he shares what he's looking at in his verticals of self-storage and mobile home parks and what's the latest going on in those asset classes. So you definitely want to tune in this episode. Ryan shares a lot of wisdom, has a unique investment philosophy. I think you're going to enjoy it. This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and interview successful investors. Looking for passive investments done for you? With Aspen Funds, we help accredited investors that are looking for higher yields and diversification from the stock market. As a passive investor, we do all the work for you, making sure your money is working hard for you in alternative investments. In fact, our team invests alongside you in every deal, so our interests are aligned. We focus on macro-driven alternative investments so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome back to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we've got a really special guest. I'm very excited for this interview with Ryan Smith. He is the co-founder of Elevation Capital Group. And him and his wife started this firm many years ago and I guess with the backstory there, but they have scaled it very effectively over the past years and now have over 20,000 units in mobile home parks and self-storage assets. And I met Ryan probably a year or two ago and really just appreciated who he is. And I've heard him on other podcasts and just really loved his perspective on investing. And so I wanted to bring him in. So I really want to hear what you're doing in this kind of current market cycle, kind of see how you view the macro picture. I think you have a really unique perspective on just the macro. And then I also want to get the updates on what's going on in self-storage and mobile home parks. Obviously, there's, you know, things going on in the broader environment that people are concerned about, but would love to just hear your perspective. So Ryan, thanks for coming on the show and looking forward to this chat.

Thanks for having me. I've been looking forward to it.

Yeah.

So let me start off just a little bit with the origin story for those that don't know who you are. And, you know, it's always fun. It's sometimes hard to get people like you on podcasts because you're actually operating a very successful and a large business. But I feel like the perspectives that you have are just really valuable. So share a little bit of this, who you are for those of you who don't know your story.

Yeah. So and just, I guess succinctly, I'm kind of entrepreneurial. Start— came— grew up in a real estate family, very blue collar. So I had an awareness of real estate at a young age. I was scraping wallpaper, digging trenches. I think the worst thing I ever did was replace the wax ring on a toilet. I distinctly remember that as a young person. So I understood what real estate was at a young age and ended up doing all my, my father's underwriting and his financial modeling. And as a teenager, my dad was ADD, ADHD, wonderful, wonderful guy. Today's his birthday, actually. We're going to celebrate tonight. But it was kind of my role in the family business to help do the modeling and the forecasting. So kind of parallel to this, I started learning to code when I was 8, kind of a nerd in a way. And so ended up learning 13 languages, computer languages, and I would basically code apps for any business owner in town that I'd go to a business, you know, with my family, with my mom, my dad, or school. And I'd see just a plain solution that software could solve. I'd write an app, put it on a disk, hand it to them and say, I think this will is the problem. And so I liked writing software, so I took it upon myself to build an application that my dad could use for his business that did all of his financial modeling without needing me. So it was kind of selfish in a way, and I endeavored to one day leave the home. But the— but in short, I spent about 4 months. He didn't know about it, and I coded this app in Borland C. And just, you know, presented it to him. He was pretty blown away. It worked. And so he told a friend who told a friend. And so anyway, in short, I had about 130,000 users of my software, mostly mom-and-pops using my software to evaluate their investments globally. Ended up selling that company, but it provided in the time that I built it up, you know, it was about a 10-year span, made a considerable amount of money off that software company. Took that income, you know, with my wife Jamie, who I connected with her along the way. And she has a significant managed property management background. So she and I, I convinced her to not become a lawyer and to join me in building a business. And so she and I kind of linked arms, you know, kind of hand in hand and started to build the business. And we started with single-family residential. You know, we used the capital we had earned and saved the software tool that I had built. And we started building a portfolio of residential, which we built. We bought about 30 houses in our early 20s. So about 20 years ago in and around Orlando, long-term, you know, mindset, we found it wasn't that scalable. And so we started looking at, you know, businesses that accomplished for us 4 things and we wanted, cash flow, capital appreciation, tax benefits. And then, you know, it could be said a lot of different ways, low beta, low correlation, you know, cycle resiliency. It's kind of all the same thing. So we want it off the roller coaster ride of economic cycles as much as we can. I mean, sometimes you'll see recession-proof, and I'm a little dubious over those kind of claims, but But anyway, those were the 4 things we wanted. So we spent a long weekend, we created kind of a— we evaluated every asset class we could think of on our dining room table and kind of put the models on the table. And at the end of the weekend, and we evaluated everything, I mean, hotels, motels, retail, office, the gamut. And the 2 that seemed to be the most compelling based on our rudimentary analysis was storage and mobile home parks. And so we started building a portfolio around that time. In the first 6, 7 years, it was all our own money. And then we started our first fund in 2010.

Awesome.

Very cool.

So, so talk about before we kind of get into the asset classes, I love to kind of spend time more at the macro level because I think one of the unique things that you kind of bring to the space. And one, being in this, in real estate investing for a long time, but two, just, you know, you're not just a pure operator, you also have a lot of great perspectives on just the macro environment. And so talk a little bit about what, what you're kind of seeing this cycle. What's your perspective on where we're at in the economic cycle? How is that changing, if at all, your investment thesis? And what's kind of you know, your— what's your plan strategy this year and the next year? You say right now?

Sure. And so, you know, you know, I would say our goal in life is to consistently make things more simple, you know. And as I've gotten older, I could, you know, I can say in a sentence what used to take me a lot, a lot longer to say. It was kind of like the I think Mark Twain, you know, if I had more time, I would've written less. So to us, we're pretty simple in our view. You know, we want to own really quality assets. And for what it's worth, there's far fewer quality assets than are claimed to be quality assets. So there just aren't that many quality assets out there. And not many of them come up for sale in any given year. So there's, it's kind of a limited supply of quality assets, but that's what we want to buy quality. And I can, go more into detail on what that is. But in short, we want to own quality. And then, you know, what we think a lot of people, you know, everybody has their different motivations and reasons for doing things. But for us, if you buy something really well located that's quality, you want to hold it long term. So you want to buy quality, you want to hold long term. And that's across many cycles. You know, the water will go out, the water will come in. You know, it, it ebbs and flows and there's benefits to those cycles, but we're not trying to time, you know, time any, any particular cycle. So we're not overly, you know, opportunistic in that way. So in short, we want to buy quality and hold it long term. And the primary reason you're not able to hold the property long term or you have forced sales is you have too much debt. Debt is the motivating factor for a kind of a forced liquidation in most cases. So we, very, you know, use very low leverage. You know, we have a portfolio of about $300 million in assets right now that has about 40% leverage on it. So it's pretty, pretty low. So we, we want to own quality, hold long-term, have low debt, and then optimize as cycles give us the ability to. But that's kind of, in short, that's kind of our view of things.

Got it.

Yeah.

So definitely a unique investment thesis, especially amidst all the— we talked about in previous podcasts, real estate syndication bubble where everyone and their mom who saw someone on Instagram get rich through real estate decided they could syndicate and use high leverage bridge debt and other things to, you know, get into this space, but ultimately kind of set themselves up for failure. One of the things that I wanted to dive into a little bit, this is something I actually heard you say on another podcast that was a pretty simple kind of framework, but for me it was very, very helpful to understand as you're investing through economic cycles, you know, this kind of longer-term mindset. And I think right now as investors, people are a little bit scared, right? They're just a little hesitant. They're wanting to sit on cash and wait to see what happens. And there is a good case to be made for, you know, being a little more conservative, sitting on some cash and having an opportunity fund. But we also have this arch nemesis called inflation that's eroding the value of our dollar. And one thing that's really interesting, and I'm going to drop some knowledge back on you that you dropped a couple of years ago when I heard you, but one thing you were talking about was, you know, as you kind of go into these different cycles and as you have, you know, interest rate increases, like we're seeing right now, a lot of times that's due to an overexuberant economy and they're trying to slow down the economy. And when that happens, a lot of times there's inflation, right? Because that's not in every cycle, but obviously in this cycle it is. And while you have the higher interest rates that can put pressure on cap rates, so it may not be a good time to sell, that can be a bad time to sell if you have to sell. But the inflation generally is going to be a benefit, a benefit and a tailwind to those that are holding and owning the real assets like real estate. And then as the cycle kind of peaks and comes back around, as you know, the economic slowdown occurs and they need to kind of, you know, juice the economy again, they can lower interest rates, which then obviously helps create more headroom on pricing and can put less pressure on cap rates. So values can kind of expand again. And meanwhile, you've had inflation that has kind of helped continue to force appreciation. And you can, as an owner of real assets, ride that and then you can expand your NOI while that's happening. And then as you know, the multiples on those, on that NOI increases, you can potentially sell at that point. So obviously a very, very kind of simple analysis and framework. But to me it was really helpful as you know, it can be really hard to not get lost in the noise of what's happening, especially right now as we're kind of in the middle of this transition in the cycle and we're seeing interest rates increase the fastest they've ever increased in history. Actually, I haven't checked, but probably right now they're about to announce another 25 basis point increase. And, you know, so it feels like all this, you know, tightening of the noose a little bit for a lot of people. And then to the earlier point, a lot of people bought real estate with bad debt that's going to be maturing this year and next year with floating interest rates and very aggressive business plans. And a lot of them aren't going to be able to make it through. So they're going to be forced to sell or liquidate in a time that's not a good time. So let me expand on that. Maybe I didn't explain it perfectly. I feel like you said a lot more eloquently, but, but talk about that, how you view market cycles, obviously in a very long-term perspective with your strategy, but You know, for those that maybe are more opportunistic in their approach, you know, how do you kind of play the cycle a little bit?

Yeah, I think, yeah, I thank you for that. That's helpful. The, you know, I think a lot of people, you know, and certainly not everybody, but a lot of people tend to look at a portion of the cycle in linear terms. So it's, we all know cycles happen and they ebb and flow, but for whatever reason, when it's good, it'll never end. When it's bad, it'll never end. And that good and bad is really dictated by third party telling us it's good or bad. So, you know, it's, it's, you know, and then it just rinses and repeats. So for us, you know, there's benefits to both sides of the cycle and in almost Newtonian, they're, they're almost equal and opposite. So, you know, in the run-up that we just had, call it arbitrarily say 2017 to 2022 or, you know, present, you know, we had You know, to your point, we had free and easy money, huge increase in money supply, and that money was looking for a home. So cap rates, you know, fell, prices rose, you know, multiples rose. And so that was, that was the benefit of, of that cycle as you had an expansion in terms of, of multiples. And but really the benefit of the cycle we're in now and going into is you have an expansion of the NOI, which at the end of the day is probably the most important part of the business. And so to the extent that your business, you know, is able to pass on inflation to the customer, which, you know, I would say is the sole and only definition of a good business, is whether or not a business can pass inflation on to the customer. If you can't, it's a terrible business. If you can, has, you know, has merit. But the point is, if you can pass inflation on to the customer and you expect inflation to be at an elevated state, then you're saying, okay, to the extent that that can remain true, they have a business where, you know, market forces, i.e., inflation is going to do, you know, let alone forced depreciation or other, you know, other initiatives that you bring to bear that adds additional revenue, whether it's adding additional units, other line items or revenue. But all things being equal, the market is going to help you really grow your revenue. And so when you look at it in the whole, and you kind of plug the two together, which is why we're long-term, because there's a lot of value that's unlocked by holding not through a cycle but through cycle changes and having that long-term perspective. You know, you might get from— let's just say, let's take it from this cycle. You say you buy an asset today and you grow the NOI X% over the future. You might take $1 to $2 and invested capital through, you know, NOI growth over that period of time. But if then you own that asset through the next expansionary, the multiple expansion timeframe when money becomes easy, interest rates are reduced, all of that, and values rise. The interesting thing is, you know, prices typically don't regress. And, you know, we pay, I mean, unbelievably, we all freely pay $5 to $7 for a gallon of milk when we all remember when we grew up, there was $0.99 or whatever it happened to be depending on when you were growing up.

So you're saying prices don't regress usually at a consumer level, right? Because obviously prices for assets can change. But as you kind of mark up prices at the consumer level, a lot of times they're not pulling them back even when the margins expand.

Correct. Because people get used to it. They get used to the new. So if, if inflation comes and we're able to pass it on, our revenues should grow long into the future. And then when the market cycle shifts and goes from more, you know, NOI growth to inflation to maybe lower inflation, higher growth, more multiple, I'm now getting a growing multiple on the already grown NOI and it becomes, you know, $1 to $2 in the first cycle might go $1 to $4. And because of the second additional cycle and so over and then you rinse and repeat that over multiple cycles and it just gets it really gets pretty silly, um, in a good way, which is then to our, our thesis— or not thesis, but our kind of a philosophy, which is, you know, you sell bad assets, you keep good assets. Again, overly simplistic, but, um, that's what we want to do, right?

Inflation, as we've been saying for a while here on our podcast, is your, your best friend. You know, at 8% inflation, the value of, the value of, of, of things will, will rise in dollar terms. It'll double every 10 years. And a 4% inflation is doubling every 20 years. So you think of 4% inflation as mild, but doubling in 20 years is a, is a big deal. And especially if you're leveraged a little bit. Well, the value of that asset doubles, but your equity way more than doubles. And the other thing is that the people don't think about is the value of a dollar decreases. We all know that. But that means you get it on the, on the debt side as well. The debt, the value of the debt is being eroded. And so, so if cash is on fire, inflation burns up cash, which it does. Well, then owning negative cash, which is debt, you want it burned up. And this is, this is the big secret that our government knows, you know, you know, just, just 6% inflation gets rid of, you know, 50% of the debt in, in 15 years. And so, you know, very few developed nations have defaulted on their debt. They simply inflated away. And so it's the giant secret. And so again, you can get mad at these things and you can get, you know, upset, or you can play the game and play the cards you've been dealt. You don't like the price you're paying at the gas pump? Well, get on the other side of the gas pump. You don't like inflation? Well, get on the other side of inflation and let it work for you. And to your, to your point, you know what, the price of an asset, you don't determine, but the value of an asset, you can determine the value of an asset, meaning, okay, you hit, you talk about NOI, that's net operating income. That's the profits generated, you know, apart from debt, debt service, it's the profits generated by that asset. If inflation is there and it's growing, that asset, well, the value of that asset is going up. Right now, the price of that asset, we're not in control of it, will come and go. All you got to do is wait for the next wave, right? And you got a negative wave. Okay, well, don't sell it. And you got a positive wave. Well, now you can, you can entertain selling and make great, great returns. But the inflation is, you know, and long-term thinking and inflation is definitely a way to win in real estate.

Well said. Yeah, well said.

So, Ryan, how do you as an investor— I mean, one of the challenges is this is easy to say, right? Everyone understands contrarian investing in theoretical terms is a good ideal, but it can be difficult not to succumb to emotions. And to your point earlier, through these cycles, the value of whatever asset we're talking about is usually dictated by some third party that probably has a bias, probably has, you know, something that is, you know, not a 100% pure motive. So how do you as an investor try to remove yourself from that? How do you, how do you think long term? How do you evaluate something on the long term when it's difficult in these kind of intermittent cycles and not to just say, oh man, real estate's dropped by 30% over the past year and this is a new normal. So now we're going to have higher interest rates forever. And, you know, it's, you know, give us some perspective there as an investor with real human emotions. You know, how do you kind of navigate through the challenges when you're trying to, you know, you want to have some cash for reserves, but you don't want to have too much cash and let erosion, inflation erode it away?

Yeah, no, I think there's— I guess to answer that, I'd go to say a couple of different things. But I think to the point, you know, Bob just made, which I thought was really great and clearly stated, I think having your own view, because I kind of, to your, to the point of your question, what I've learned is most passive investors delegate really fundamental decision-making to third parties because they don't trust themselves. Not all, but a lot of them do. You know, it's, it's, they're investing because their friend is, or their dad is, or their advisor. But very few of them say, I've looked at it, I like it, I'm moving forward come what may, you know. And, and ultimately, um, and we, we have that. I have a, we have an investor of ours who's an unbelievable guy. He's been in 5 of our funds. He's one of our early investors. And, you know, his first investment with us when I think I was, gosh, was 32. You know, my wife was 29, which is really unbelievable now looking back. But his comment was, you know, I, you know, I believe in you, I believe in the model. And if I lose 100% of my principal, I'm okay with that because, you know, not that it was that risky of a gambit, but to the point of making a decision, he, he had decided he was good with whatever the outcome was and acknowledged the outcomes, which I, which I like. But to the point is, you know, having a, having a view independent of third parties. So, you know, seeing, understanding price and value, understanding, you know, what, what can, what long-term cycles can do to benefit you. But basically developing your own, your own view and making your own decision, I think is important. And to that end, I think believing in yourself and then, you know, self-discipline, you know, because it's, it's, it's, you know, we all know what it takes to lose weight. But our country obviously struggles with that. You know, there's the simple truths are simple and they remain simple. Doing them is hard because it takes self-discipline and commitment and all of those things. And, you know, we as humans, myself included, struggle with that. So, but I think those 3 pieces I think can help. Certainly not exhaustive, but—

Yeah, I love that. Let's get a little more tactical here because I think, One of the things that's been really interesting this year in particular, in 2023, is obviously inflation is a great tailwind for rent growth. So for top line revenue as a real estate owner, and that's going to be one driver of NOI growth, right? You kind of have two levers, increase revenue or decrease expenses. And that's kind of the natural thought. And hey, let's cheer on inflation. But the other side of it, which is the not happy part, is the expenses. And we're seeing massive increases in operating expenses of these assets. And to me, it seems like a lot of times the top line rents, because they are— you can adjust them to inflation pretty quickly because, you know, even on a multifamily property, your longest, you know, cycle of locking in your rent is a year usually. So you have 12-month leases and so you can adjust it at least annually, if not a lot sooner. You can mark to market faster, but the expenses seem to be a lagging indicator here. And they're now realizing that we're seeing massive increases in insurance and in payroll for the labor shortages. Obviously, real estate taxes are going up as values have increased. So how are you just as an operator kind of managing through that? Because it feels like, oh man, my NOI is actually getting pretty compressed right now. Not only on debt service and hopefully a lot of your deals have locked in interest rates, so you're not being impacted on that. But higher interest rates, higher insurance. And yeah, we're, we're treading the top line pretty well. But hey, we also have a massive amount of new deliveries and, you know, multifamily especially. But we're also seeing some softness in absorption and self-storage and these other asset classes. So how are you kind of you're getting real, you know, technical right now. How are you kind of managing through this cycle in some of the more nuanced ways?

Yeah, so good question. So on— I'll hit the debt part first. So we're always long-term fixed, always. So, you know, that made us somewhat unpopular probably in the last, you know, 2019 to call it 2022 when you could get much lower if you did crazy things. And we said no, we'll go long-term fixed. Now we, you know, I'd say look brighter than we did then. Um, but no, we, we're generally 5 to 10 years fixed rate debt. So we have a pool of assets right now, it's our Fund 7, has about $300 million in assets in it. I think the average interest rate's like 4%, uh, fixed, with most of the, a lot of the loans, um, fixed until 2030. So we're sitting pretty. I think our lowest rate's 2.5% in that pool. So, so we're always about fixing our debt. So we're not that exposed to, you know, so it's low leverage and fixed rate. So no matter really what happens to the, you know, to the, to the price of the asset, the multiple, or, you know, we should be more than fine, have enough headroom or what we call a margin of safety. To your, to your point on expenses, the labor— our labor expenses have gone up but are not gross. I mean, it's— they haven't been overly severe. They've gone up incrementally, but we haven't suffered too much because mobile home parks and storage do not require a lot of labor to operate them. And we have several, you know, we have, for example, we have about $60 million in mobile home parks in the Washington, D.C. metro managed by one manager. So it's, you know, if hers goes up, it's insignificant to the overall performance of the assets. So we've seen a little bit there, not a ton. Insurance, to your point, has skyrocketed and it varies by location. But, you know, the Florida properties certainly are seeing higher rates. And so we've had to get creative with insurance. you know, without taking what we feel is too much risk. Got it.

Talk a little bit about just self-storage and mobile home parks as asset classes and what you're seeing. You know, I think it's kind of a similar refrain we've seen in multifamily as well, where we've had a massive run-up in rents the past several years, you know, 2020, 2022. I don't know what the national numbers were on rent growth numbers, but they were extreme, you know, outside of the mean. And now it's kind of slowing down a little bit. And now because of that, a lot of new development came online and those, those delivery or the things that were started 2 years ago are now coming online and being delivered to the market. So, you know, a lot of predictions are saying, hey, over the next 12 to 18 months, absorption is going to be pretty, pretty slow because of a lot of the new product coming to the market. Meanwhile, we're already having a little bit of slowdown in rent growth, if not negative rent growth. And so how are you— are you kind of seeing that at a broader level across, you know, your assets in self-storage? I mean, we have all assets that we own in this space and obviously our listeners have self-storage investments as well. So what do you kind of see just kind of at the broad level in your portfolio?

Yeah, I think at a, as at a higher level, just kind of theme, I think these kind of times are when, you know, the historical models are kind of stress tested, meaning, you know, we, we have all tried to buy what we believe are quality assets, well located, as stated earlier. And I can go into more detail on what I mean by that. But when you— I'm sure you've seen the same thing over the last couple of years with that syndication kind of boom where it's like every asset is unbelievable and it's unbelievable because I said it is kind of thing. And, and so there were a lot of tertiary, non, non-optimal properties, you know. And so the point, the point in it is that doesn't mean they're a bad property. It's just they may suffer a little bit more during economic cycles, you know, like we're seeing now. So for example, in storage, we're all, you know, one of the big— actually, number one on our checklist is, are there barriers to entry against competition? That's number one on our list. And it's a long list and every year it gets longer. But number one is barriers to entry. So, you know, as an example, well, I can give you examples, but the point is it's high barriers to entry. So we have historically, we do not buy. And in the last couple of years, you and your listeners would would have seen this in any market across the country, just the, the bevy of new storage being brought online in generally in the outer rings of cities, kind of in the path of progress building where they hope one day people will go and grow and live and density will avail itself. You know, and so we are much more inclined to buy a property very well located with very little land available for sale they would almost have to buy a property, you know, for another use, tear it down and then build storage, which would make no sense. So very high barriers to entry and good, you know, dynamics in the market. And I can give more examples to this, but I say that to say, you know, we haven't— I saw an article in The Wall Street Journal, what is now yesterday, talking about kind of on the whole how— and I presume they're talking about street rates, how street rates are down 20% from from last year, which is interesting. Ours are not. Ours, we have some properties where we're discounting a little bit more, but not much. We're definitely not down 20%, but that's also the benefit of storage. You know, our average customer stays for 1,200 days right now. And so that's more than 3, you know, more than 3.5 years, let's say, on average. And so even if we have to discount, you know, whatever it is, a dollar a month or $50 move-in special or 2 months free or, you know, 1 month free, any of those things. And, you know, that doesn't preclude us from pushing rents 4 months from now because, you know, point of, of annual, both mobile home parks and storage are month to month, you know, which is, which is great. So we can be really tight to the market, but we're not seeing— I am seeing a glut of— in some cities there's a lot of new supply. Let's say Nashville is one. And there's, there's several others. So depending on where, you know, if somebody has invested in a storage facility, depending on where that property is in conjunction with new properties coming online, it could be soft for a couple of years. But, you know, it's really property by property based.

Yeah. And do you think a lot of it is the slowdown of absorption is due to new deliveries hitting the market, or is it also part of just in this in-between part of the economic cycle, you know, part of the thesis I've heard of self-storage is it does well in change, right? As people— as the economy is booming, people are doing well, they're expanding, they're moving, you know, upgraded a bigger house. So they're having things in storage or in a down cycle, you know, they're downsizing, they're putting stuff in storage because they don't have room for it because they're going to smaller apartment or smaller house. Well, right now we're kind of in this weird in-between, you know, at the middle of 2023. Where we haven't seen a recession and we have a lot of mixed signals and it's still kind of a wait-and-see mode. Is that also impacting some of that slowdown in activity or kind of both?

And I think that's fair. I think, yeah, storage benefits and kind of friction, people moving up, down, sideways, you know, that all benefits storage. But to your point, right now I think everybody's holding their breath waiting to see You know, they, you know, you consistently hear the soft landing is coming. We're going to achieve it. And I don't think most people believe that. So they're kind of, you know, standing by waiting to see. But, but I think storage will be fine. I think it'll be a great asset class in the long run, you know, but I do think there's, there's a lot of supply coming online, although, you know, new supply is on the decline because cost of capital is up. Material costs are up, you know, and, and the softness that is being reported is, you know, so that'll in turn, you know, kind of help the next leg to be.

Yeah, no, I think it's a really important point because you think about all the new deliveries that are coming online, whether it's self-storage or whether it's multifamily, a lot of those were started a lot of times several years ago. And, you know, at a different point of the economic cycle. And so right now, the projects that are being started now, like multifamily, I'm using as an example, it takes about 20, 18 to 24 months to actually bring units online. And so it won't be until middle of 2025 before you're starting to lease those units. And right now we're seeing the amount of construction starts. So new projects kind of hitting the ground and getting going. Has kind of fallen off a cliff, which is to be expected because the cost of capital has risen so much. Banks are pulling back and really tightening the lending standards. And so for the next kind of 18 to 24 months, maybe absorption is slower because of all these kind of historical deliveries coming on the market. But if you're a long-term investor and you're investing in, you know, good fundamentals where there is kind of long-term demand in 18 to 24 months, I'm really excited about the projects I'm starting right now. It's a lot more harder, a lot harder to get deals done right now, but I'm not going to have as much competition, you know, down the road when I'm, when I'm delivering those. So I think it's an important point to make because to your point, these kind of these expansions and contractions, they're not linear. And sometimes things we're seeing right now happen as a result of decisions a couple of years ago and vice versa.

Agreed. You know, so there's an economist who's an interesting guy who most people will probably know well. And Jamie and I have become friends with him over the years, but his name's Ben Stein from, you know, Bueller. Bueller. Sure. Yeah. He tells a story of, you know, this. He told Jamie and I over dinner a couple of years ago the story of a house he bought in Beverly Hills. I think he bought it for $400,000, if memory serves me correctly. Ended up selling it for, I think it was roughly $2 million to a guy he thought was the greatest fool on earth paying $2 million for that house. And that house as it sits today is worth over $8 million. You know, so his comment was, you know, I thought he was the bigger fool and, you know, and he had right to think the same or something. It was funny. So the point is on that house, let's say all that is, you know, to my memory, accurate. If he bought it for $400,000 or $600,000, what would that change in the outcome?

Yep.

You know, look at that, $400,000 and $600,000 and remove everything else. It's a huge difference. And, you know, to that point, you know, we're not— we're definitely not frivolous, nor are y'all in making acquisitions. It has to pencil, has to make sense. But ultimately you have to play the game and there's a huge cost in waiting and thinking you have an accurate view of what's going to happen 2 years from now and waiting to that point. Because if you're wrong, it could cost you a lot. So, you know, we're really big believers that you got to play the game. You got to put chips on the, you know, should we call them chess pieces on the board? You got to put chess pieces on the board and play the game. So, and we just bought a And to that end, we just bought a property 3 weeks ago in Vero Beach, a storage facility. So we're still acquisitive. And, you know, we obviously, we like storage, bought one 3 weeks ago and we think it's going to—

theoretically, I mean, right now could be a great time to be buying, right? Because there is less competition because of the cost of capital. And, you know, it's not as frothy as it was before. And so if you're going after the quality assets, you know, you might be able to get them at a better, better basis.

Yeah. And if you look at the cycles, if 1 1 4 and kind of the multiplication of the cycles, then, you know, there's— as long as you hold long term, there's no bad time to buy, you know, because you still get 1 1 4 to a degree. So, yeah, I mean, we're— there are transactions that are, you know, there are times at which transactions are easier to come by. But, you know, for us, we're not trying to be market timers, you know, because it's, you know, maybe you could have waited a little bit, maybe not. But there's so much risk in being wrong. You know, we're just— we want to buy, buy good assets, well-located, given the, given the concept that there's just not that many good ones out there. So, you know, if you see something you really like in an area you really like with a team that you like and a model that you believe in, the chance of something else coming anytime soon like that, you know, it's— there's not that many good deals out there. There just really isn't. So, you know, I'm a big believer in just taking action and, and moving when you see something you like and living with it. And if you can't live with it, then, you know, that has nothing to do with investing. That's a— and I'm not qualified to counsel on that, but that's something else.

Awesome. Any final thoughts? What do you kind of— where do we go from here just as an economy, middle of 2023? I haven't checked the Fed minutes yet, but I'm assuming they bumped rates, you know, probably hopefully second to last time or close to it. But where do you kind of see the cycle kind of going from here? Do you think we're going to get inflation under wraps or are we holding on for a longer time?

Yeah, no, it's interesting. And, you know, to a degree, if you're a long-term investor, you really don't have a dog in the fight. You know, it's more entertaining than You know, in, in terms of kind of the, the noise surrounding it. But yeah, for, I mean, if, if I were to give you my, my, my best guess, I, I, you know, I think the Fed's going to have to see it through. So I, I think they're probably going to overdo things like they normally do. And it's a guardrail kind of management process. They're going to hit the guardrail and then bounce off and, and probably head to the other guardrail. You know, I, I have no idea when that'll happen. But I think they'll overtighten, break a couple of things, and then, you know, come to the rescue with, you know, QE round 27. And, you know, and that will, you know, who knows? But I do think, I do think we have, I don't think we're going to go back. I think the presumption is as soon as the Fed pivots, we're going to go back to the high times of 2021 and '22. I don't necessarily buy into that. But I think it'll be more normative, kind of more boring, which is fine.

Yeah, that was probably the other side of the guardrail with, you know, really cheap, easy money.

And right. I don't think going back there anytime soon is my guess. But I think sometimes people think we are and they're, they're holding their breath till that happens. But I don't think we are. And for what it's worth, to the point of our earlier discussion, if I had to pick which cycle we sat in the longest, I think the cycle we're in right now and going into, I wouldn't mind sitting in that longer than the other one.

Got it. Very cool. Well, Ryan, thank you so much for coming on and sharing some thoughts with us here, and definitely got a lot out of it personally, and appreciate you sharing with our listeners.

Yeah, you bet. Always enjoyed time with you and Bob Fraser Fraser Fraser. Think highly of y'all. So thanks for including me.

Appreciate it. What's the best way for folks to kind of reach out to you, hear what you guys are doing at Elevation? What's the easiest place to get in the loop on the mailing list or otherwise?

Yeah. So anytime anybody can email me at ryan@elevationcg.com or elevationfund.com are the two.

I thought you're trying to keep things simple.

You just give out your email address, but Yeah, yeah, you're a very generous guy. So we have no sales team, no sales.

Awesome. All right, thanks so much. Really appreciate it. Thanks for coming on.

Have a good one.

Bye.