KRIS BENSON INTERVIEW – Self-Storage Investing, Weathering Market Downturns, & Creating More Time In Your Life

Welcome to the Next Level Income show where it's our goal to take your income, your investments and your life to the next level. You can get our free book and more educational resources@next levelincome.com on today's show we have Chris Benson, who's Chief Investment Officer with Reliant Investments. Reliant Investments is a vertically integrated commercial self storage operator located in Roswell, Georgia. Mr. Benson oversees the equity raising arm of the business. He sits on the investment committee and manages Investor relationship. In the past 24 months, the Reliant team has been responsible for over 200 million in self storage acquisitions across the southeastern United States. Chris was a sales professional. He brings a wealth of knowledge from his ownership experience in the commercial, multifamily arena. And prior to joining Reliant, he worked for Intuitive Surgical, also another medical device company which was the developer of the Da vinci surgical robot. Mr. Benson graduated from the State University of Binghamton and and he currently lives with his wife and children in Roswell, Georgia. So, Chris, welcome to the show.

Good morning, guys. Thanks for having me.

Absolutely. So, Chris, I know your partner Lou, who lives not far from me here, which is how we met. He connected us. But for the audience who's listening today, please share your story about how you went from being in New York in the medical device field to being down south here with us and entering the self storage investment industry.

Sure, I'd be happy to. So from my background is pretty varied to your point, Chris. I came from the medical device industry previous to going to real estate full time. So my background was sales. And essentially when I turned, I don't know the exact date, but somewhere in the 30 range, 28 to 30, I distinctly remember waking up and saying to myself that I can't do this for the next 30 years. So I was very successful. And I guess in the metrics that you traditionally measure, I had a great job, worked for great companies, had a really nice career. But the biggest issue was time. I just didn't control my own time. And I think the bigger thing as I got older and realized is, was I never was going to. I was on a path that just kind of started over every January 1st. You know, I mean, quotas just start over and away we go again. So what my perspective was was I got to find something to replace that income and preferably in a passive manner. And so that's what led me to real estate investing initially. And I started on a path similar to probably how most everybody has. So we initially bought some duplexes in the town that we lived in in upstate New York. And we bought a number of those units and very quickly realized that that was not scalable. It was awful. Actually, it was my least favorite part of the real estate endeavors that I've been a part of. And mostly it was because not necessarily the day to day management aspect, we had outsourced that pretty well, but it was really the people part of it. We were managing B, B minus type properties and it was almost soul sucking. It just wasn't what I wanted to do with my extra time, which was very limited already. So we got into commercial multifamily. Actually, my first family project was a 64 unit development. We ended up selling all of the duplexes we had. And I had a family friend who was construction developer guy in the town I grew up in and I randomly called him one day, I had talked to him in probably 15 years and said, hey, I have a little bit of money, I want to get into apartments, what do you got? And he had just so happened to talk to a municipality about a piece of land that they wanted to do something on as far as housing. And that led to a discussion of building the 64 unit complex. So fortunately I have a wife who's very risk tolerant because essentially we just put our life savings into this project and had a great partner who kept us safe for the most part. We had little hiccups here and there and still do, but that was the beginning of commercial real estate for me. And so, Chris, for me there was a quote that I heard or read, and I wish I could give credit to who said it, but it was big deals and small deals are the same amount of work. You just make less money in small deals. And so that was really true with commercial real estate is once I understood kind of the scale that you could operate on, the light bulbs went off. So from there I started investing passively into some syndications around the country, primarily in primary markets, Dallas, Atlanta, Phoenix. And essentially what we did was my little group grew organically so people knew what I was doing and said, hey, I'd be interested in investing in the next project that you're a part of. And pretty soon that group was sizable, where we were able to bring pretty large equity checks. And in return for that, I was getting earning ownership on the back end of projects that I was investing in personally. So that's how I got started kind of investing on the commercial side of things. And then I know this is a long, drawn out story, but it's basically my Life. So I feel like I at least get a few minutes to talk about it.

Absolutely.

But how we get to self storage was as the asset class of multifamily continued to cap, rates continued to compress, I wanted to see what other types of asset classes still had value. And in doing some homework, self storage was one of those. And I ended up talking with a number of self storage operators, Reliant being one of them where I am now. And I started out as an investor in Reliant first and then kind of fell in love with the platform, but more importantly the team who was here. And as a function of that, about two years ago, Todd, my partner essentially said I needed help or he needed help in raising some equity. And he described what he was doing at that point. And I said, well, we can do better than that. And we formed partnership. I joined the company as an employee. It'll be two years in April and it's been pretty fun. We've relocated our family to Georgia this summer we moved down to Roswell where all our office is, we're just outside of Atlanta. And yeah, it's been quite an adventure.

I love it. Thanks for sharing all that, Chris. And one of the things I think that I enjoyed when we first met was a lot of the similarities that we have in our stories. So what, what year was it that you did that development? I'm just curious, kind of going back through the cycle here.

I think we started it, we did it in phases, in 16 unit phases. So I want to say 2013 is when we started it and then built out a 16 unit phase at a time. The first one we did 16, the next one we did 32 and the last one we did 16 with the idea of the market we were building in was a tertiary market by all means. And so the hypothesis was essentially, we thought we could be essentially the only class A apartment offering in the market. And so our rates comparatively compared to the comps were way above what a two bedroom, two bath would be market. And so we wanted to see if there was a market for these types of assets. And it was my partner's hypothesis more than mine. But I went along for the ride and turned out pretty well.

Terrific. Awesome.

You mentioned cap rate compression as being one of the reasons that you first started shifting your focus to self storage. For someone listening though, who might not know much about investing in self storage, could you dive a little deeper into why you invest in self storage and now have you're made a whole career shift to that area?

Yeah, I mean if you're aware of what's happening in multifamily, there's just so much capital chasing deals that, and this has been the case for probably the last three years that you know, cap rates continue to compress so it's harder to find value. Storage will get there. And we've certainly seen a cap rate compression. I don't know if it's necessarily as much as we've seen in multifamily, but you know, when I looked at storage there were three things. Caleb. I'm a data guy. I like to see kind of the historical data and understand where that's going to point us for the future. So for me, you know, I looked at a couple things. One was returns, right? I mean everybody wants to talk about historical returns. And the database I like to look at is the national association of REIT Data. It's the N A R E I T. You guys can put this in the show notes, it's free and everybody has access to it, but they have 25 years of all the publicly traded REITs. And you can look at every subsector of real estate, I mean to the timber, agriculture, REITs. If there was a publicly traded REIT, they're tracking it. Storage in the last 25 years did just under 17% a year. And even comparatively to apartments, which I think was around 13%, it outperformed. So that was kind of an eye opener for me. And storage has always been considered, well, maybe until now, the secret is kind of out. But it's kind of this niche thing where, you know, apartments, office, retail are kind of the darling set. The darlings of commercial real estate and storage has always been, you know, this red headed stepchild that all of a sudden people said, oh you know, that does really well, let's get involved. And the other thing that I looked at is so, you know, performance was really good. And then I wanted to understand what happened in the last correction. So if you look at data from 2007, 8, 9 stores lost less than 4% of its value at the REIT level. And if you look at what happened to apartments, it was closer to seven or eight. And then retail and office just got, they got hurt, as you expect.

Yeah.

And S&P 500 during that same time period was down 22 plus percent. Right. So not only did it perform well historically, but had some downside protection. So you know, two things. Check the boxes. That seems like a pretty good asset class to get involved in. And then lastly, and this is probably the reason, Caleb, I've Hitched my wagon to storage, for lack of a better term, really the consolidation opportunity that exists in the space. Right. So there's five publicly traded REITs in self storage, the names that, if your listeners are listening in a car, if you look off any highway interchange, you're probably going to see extra space, public storage, Cube, smart, and there's two more. And U Haul is one of the six publicly traded companies, not a REIT, but those guys own about 25 to 30% of the market, depending on what data you look at. Right. So the other 70%, the ownership is very fragmented. So I see that as a consolidation opportunity where in multifamily, those properties have been consolidated for the most part. I mean, there's still, you know, as you guys know, there's still opportunities out there, but it's much more challenging to find here. There are still in Self storage, there are still a lot of mom and pop operators, you know, think people who own one or two facilities that offer tremendous opportunities for growth and value add. So that, that was really the three reasons that brought me to storage initially. And, you know, at Reliant, we're doing a little bit of everything. We're not doing just value add. We're doing stabilized assets development. So, you know, my partners and the team here have a vast knowledge of storage, and so they're able to apply that across the board.

Terrific. So, Chris, you know, you talked about some of the data that was in there. How do you. What are the. What are the similarities to multifamily or differences that you see? Like, we look at, you know, the baby boomer trends, the millennial trends, people are, you know, if they're downsizing, I imagine they're putting their stuff into self storage. For instance, if they're, you know, millennial, that's moving from city to city, they're more transient than prior generations and mobile with their careers. How does that affect what you guys do?

Yeah, I mean, we're looking at this similar demographic trends that multifamily asset classes to job growth, population of a market, traffic count, the amount of supply in a 135-mile radius. I mean, what's interesting about storage is the demand is challenging to understand. So I think from a perspective of how do we decide who's going to move into a storage facility? That's one of the biggest challenges that we see at an underwriting level. I think, as an asset class itself, we're a business of change. So anytime there's transition, that's usually good news for storage. You just mentioned Chris Moving. If people are moving, typically their stuff's coming in and out of storage. What's been interesting is if you look at the percentage of the American population who's used storage over the last 10 years, it's a hockey stick graph. What we don't know is why it's sort of been if you build it, they will come mentality where what's happening to influence how storage demand is getting consumed or how storage is getting consumed, at least we don't know. And I would argue that most of the operators in the industry aren't 100% sure of, hey, how do we ascertain demand? There's been some interesting studies where people have spent a lot of money trying to understand statistically significant metrics that matter to demand, like things very nuanced like divorce rates in a five mile radius. Right. You know, move in rates, new jobs, and none of them are statistically significant. So. So each market's very nuanced. And the one thing I'd say about storage, Chris, different than apartments is it's a sharpshooters game. So our tenants are usually 70 plus percent of them come within a five mile radius. And so all that matters is that MSA or that five mile MSA. The data at the market level is somewhat irrelevant. It's about understanding that intimate group and what's happening in that particular radius of from your store. And I think that gives you the opportunity to go find maybe markets that have been traditionally oversupplied. An opportunity to go out and find something or a good opportunity in that space.

Yeah. And I've noticed on your website, I mean if anybody goes and checks it out, you guys, you follow similar demographic trends to where what we look at Southeast, you guys are heavily concentrated there. What geographic areas are you guys focusing on in the future?

So we're vertically integrated. Right. So we're the management company as well as the acquisitions team. So we have 50, as of today, 57 properties in the portfolio. And so we're always trying to connect the dots on that portfolio. Right. If you think about how we exit or how we look to exit, it makes sense. Or there's a better valuation if we're able to exit at a portfolio level. So we're trying to connect the dots with the portfolio we currently have. And not to say that we won't look in states that we've never been in. We just bought our first three properties in Tennessee this summer. We probably wouldn't have done that if we bought one. But the ability to have three and create Some scale. We have a portfolio in Alabama, so we're trying to connect it with the Alabama portfolio. I think that's how we look at it. We're opportunistic as far as markets are concerned. We like the Southeast for the reasons most people do. Net population migration. You got a lot of people moving from the Northeast to the Southeast, so you got good population growth.

Like you.

Yeah, like me, indeed. And then, you know, obviously there's some tax advantages. Florida doesn't have state income tax. Tennessee doesn't have state income tax. So, you know, there's definitely some reasons why people are moving here, as well as the weather. So we kind of look at anything. But essentially our first blush at it from an underwriting standpoint is going to be, does it match with the rest of the portfolio? Is there a reason we'd like to be there?

Terrific.

Chris, before you had mentioned briefly a couple different strategies like value add and stabilized assets. Could you explore a little bit about the different strategies you all take with the assets you acquire and how you apply them?

You know, it's not too dissimilar, Caleb, than any other asset class. Right. So, you know, a core plus or stabilized asset, essentially we're buying it to clip coupons. Right. We're buying it for cash flow. There may be some things that we can add to improve, but, you know, for the most part, we're buying it for the cash flow. It's a low execution risk strategy, you know, a value add deal. The business plan on our value add properties are different for each one. And I think Todd Allen, who's one of the co founders of Reliant, his advantage is he's got a vision when he walks on a property of what he wants it to be. A value add for us could be we go into a market and the current owner has an expansion opportunity and we feel like the market's undersupplied. So we're going to put a shovel on the ground and build out some buildings. And we do that quite often. We have an internal project management team. We're not the gcs, but we have an internal construction project management managing those process. For us, the value add also could be like a CFO deal where we're buying an asset at certificate of occupancy and the value add or the risk is getting it leased up, take it from zero to stabilized and implementing our management strategies to do that. So really, value add is a pretty broad definition for us. It depends on the particular property and where we think the opportunity is. Development deal Caleb is what you'd expect development to be. We buy a piece of dirt, get it entitled and permitted, and then we're building out a building. And most risky on the risk spectrum. I typically know cash flow for two years and investors on the development side are really hoping for the back end pop. At this point in the cycle, we're really hesitant for ground up but unless it's a real home run.

Chris, so what are you seeing in terms of you're talking about, you know, when you're leasing up or you have stabilized, what are you seeing in the market in terms of self storage? How technology is playing in and like what different amenities. Obviously, you know, in apartments you have different amenities. At C, B and A levels residents are expecting different things. Are you seeing the same thing in self storage?

No, we rent boxes. It's hard to put amenities in a garage. I mean, look, so there's definitely an A, B and C class level. It's not quite the same categorization and as cleanly as defined as apartments are, you know, but you know, what most tenants want is safe, clean, reliable. Right. So expect to walk into a retail location that looks like a retail center. Right. You know, storage has come a long way. The first storage unit I ever rented was a guy's house and he had a whole bunch of units behind his house. So, you know, literally you walked into his house and he's got a white T shirt with spaghetti stains on it coming out and saying what do you need? You know, it's come that that's a generation ago of storage. And now, you know, we're developing on the corner of Main and Main with three story stone and glass buildings. So when you walk into the retail office, you know, it feels like a Starbucks. You know, I mean, it's that type of feel. So, you know, I think most people want to ensure that their stuff is safe, that it's clean and that they have the customer service that they need. But there's not really a specific amenities. You know, you mentioned the technology. There are some operators that are doing kiosks where there's no humans on the site. Right. So that you can go in and it's like a vending machine, you can rent the unit, you can get your locks all electronically and we've evaluated that and I think there's probably opportunities in some markets for it, but for us a big part of our revenue stream comes from ancillary income, typically 10 to 15% of pro forma. So things like U haul truck rentals and point of sale Systems where we're selling box and locks and tape, those kinds of things, tenant insurance, those all require a human to interact with you because most we call them effort sales. Right? Like you have to ask, like, hey, you're renting a truck, do you need boxes? You know, those kinds of things where if you do a kiosk, you're walking away from a portion of them. You know, we don't have any. So I can't speak to our own data, but it's certainly something that right now doesn't make sense based on the portfolio we have.

Yeah, no, that makes sense. That makes good sense. So Chris, what are your thoughts? We're ticked over to a new decade here. You mentioned some consolidation. What other thoughts do you have on what this decade is going to hold and what are you guys doing at Reliant to scale in terms of that and take advantage of some of these trends?

Well, I think the biggest thing in storage right now is the new supply that's hit the market, right? So in the short term, it's riding out the development cycle that's happened. I mean, in any asset class, if you perform, people are going to show up, right? So after 2007, 8, 9, 2012, people realized, wow, storage did very, very well. And you see if you look at the amount of development spending in storage, talk about a hockey stick from 2014 to 2020, it's crazy. So the most new net rentable square footage in the history of the asset class has been delivered in 2018 and 2019, beat 2018. So with that comes a lot of new supply to market. And the short term impact of that is it's going to impact some of your markets, right? Supply and demand. So I think the short term is we're going to have to ride that out and there'll be some markets that are impacted. Primarily that development was across the top 50 MSAs. Right? So think New York, Dallas, Louisiana, Denver, Atlanta. We primarily operate in secondary and tertiary markets. So that's where we've been able to find value and be competitive. So it hasn't affected us as much, but there's certainly been some markets that it's affected us for sure. So I think in the short term, Chris, you gotta let that settle and we'll kind of come back to an equilibrium. I don't foresee, and this is my own hypothesis, so take it for what you will. I don't foresee us having a major shift in the demand curve for storage. If you look at some of the population trends, here's what's most interesting to me on the long term growth. So, you know, if you look at the national REIT data, which is all public, you can go out and see their investor presentations. They track their portfolio scale and some of these facilities or companies have thousands of properties across the United States. They look at the percentage of population that a specific generation makes up of the total US population. So let's say, and I don't have the numbers in front of me, but let's say baby boomers make up 30% of the U.S. population. Right. And then they compare that to what percentage of their tenant base that generation makes up. Right. And what they're trying to see is is it relatively close? Like for example, the boomers are relatively close. Right. They make up 30% of the US population and they make up 25% of their tenant base. Right. So it's a pretty good indicator of like, okay, generation by generation, how's this going to work? The most recent generation, which I think is Generation z, I'm not 100% on that either. But the youngest generation storage users, the most time that they spend or the best consumers of storage are between 30 and 65 Gen Z, they make up 35ish, don't quote me on the exact numbers, but 35ish of the US percent of the US population, but they make up less than 5% of the storage consumer base. And so the hypothesis behind that is as they come of age, it makes the pie bigger. So you're going to have more people consuming storage, which obviously is a win for us. We hope that's the case. And as boomers start to die off and that percentage gets lower, they will outpace the boomer die off. So it's interesting demographic trends that only time is going to tell on that. But if you're asking me what's kind of my long term view of it at the decade level, that that's how I view it.

Yeah, that's terrific. So I guess like how sticky is self storage? So you said, you know, the pie is going to grow. So if I'm, if I'm 60 years old and I move my stuff into a unit, am I likely to move? How likely am I to stick, stay in there or move out or, you know, that's one of the things I enjoy about self storage is, you know, you raise prices, five or ten bucks a month, I'm probably not going to move my stuff to another self storage unit.

Yeah. I mean it depends on the market. Right. And the type of tenant that you are residential Tenants have less tenure than commercial. You know, typically our commercial tenants are staying 24 months or more. You know, most, I think are in our particular portfolio. We just looked at this a quarter ago. I want to say it was just under 40% of our tenants stay less than 12 months and then it's another 40% that are staying more than 12 months. And then there's a 20% period of the tenant base that is essentially 12 months or more or I'm sorry, I think it was 24 months or more. So it depends where you are and what markets you're in. If you're in a snowbird market, right, where you have people coming in and out every winter season, typically those people are stickier. Right where I'm going to put all my summer furniture in storage and then I'm going to leave for the summer and go home and then come back in the wintertime. Those tenants hang around longer. If you're in a relief transition. A lot of move ins, a lot of move outs. We have a property at a mixed use development or planned use development in Florida where they're just buying and selling a ton of homes. And so we're seeing a lot of churn. We see a lot of volume people moving in. We also see a lot of people moving out just as homes are finished and they don't have that need for storage. So it's really a market by market specific dynamic.

Yeah. Cool. Thanks for sharing that.

So, Chris, one question we always ask on the show is if you could go back in time and Talk to your 25 year old self with everything you know now, but just offer yourself one piece of advice back then, what would it be?

Specific to storage or are we talking about life?

Life.

You can, you can pick.

Yeah.

Well, a couple things, I guess. And it's going to sound hokey because I've listened to a lot of podcasts and people probably have similar answers. I think the first one is from a real estate investing standpoint, you have to jump in, right. So at 25, I was still chasing money, I think is probably the best way to describe it, where I was looking for paychecks. And then when I started to make what almost everyone would consider really great money, I was like, oh, that's not what I want with real estate. For me, it was about controlling my time. That was kind of what I realized and as I get older, realize is the only thing that matters. You can always make more money, you can always buy more stuff, but the timepiece doesn't matter how much money I have. You're not getting it back. So, you know, for me it was jump in sooner. I didn't know everything. But it's really hard to learn if you're sitting on the sidelines. I'm not saying, I'm not advocating for you to do dumb stuff. You got to educate yourself, but surround yourself with people who can mentor you and help. And that's what we did in kind of my path. I've had good partners along the way, but you got to jump in to learn. So I would say that. And then that's specific for real estate on the life piece. And this is something I still struggle with. But the fear part, there's so many quotes about fear, but it's one of those things that the person that's scariest to is you. Usually it doesn't turn out the way that you think. So when you're laying in bed thinking, oh my God, what have I done? It usually turns out okay. So the fear piece is one that I continue, you know, day to day. Like sometimes we're doing stuff here that I'm like, I don't know why we're doing this. This is going to turn out bad. I'm going to be living in a van under a bridge. So far, so good. We haven't ended up there yet. So I think those are two things that you can apply to almost anything.

That's terrific, Chris. And that's, you know, again, that's one of the reasons we wanted to have you on. It's been super interesting learning a lot more about the self storage industry. I know our audience is going to have some questions. What is the best way for them to learn more about Reliant and what you guys do?

Yeah, for sure. So if you're interested in kind of the operating company, we have a couple websites to check out. So Reliant www.reliant-mgmt.com really talks about the storage platform. If you're interested on the passive investing side of things. Reliant investments, plural. So reliantinvestments.com that has a lot of information about our investment platform track record. There's also some educational components on there, Chris, for new investors who are looking to kind of understand what they should know as they get involved. We've done a bunch of video series kind of, it's all free just to limit the number of questions that we get as investors talk to us. So all that's on relianvestments.com and then I'm pretty active on LinkedIn. You can certainly connect with me. Me, Chris Benson is Kris with a K. But if you Google me and Reliant, you'll find us.

Terrific. No, thank you so much, Chris. We really appreciate you being on the show. You've done a terrific job in terms of putting out that educational material. We're going to have all of what you just mentioned in the show notes. So if you're listening, like Chris said in the car, go ahead, take a look at the show notes. You can find more information on Chris Benson Reliant and learn more about the self storage. Thank you so much for being on with us today, Chris.

My pleasure, guys. Have a good rest of the day.

Thanks. You too, buddy.