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

In 2008, Brad Minsley faced every real estate developer's nightmare: $500 million in loans called across 27 banks. Most operators would have been wiped out. Instead, Brad fought back, survived the crisis, and used those hard-won lessons to build Ten Federal - one of the most innovative self-storage companies in America.

Today, Ten Federal operates 120 facilities with revolutionary automation technology, proprietary DaVinci locks, and just 0.6 employees per store (compared to 2+ at major REITs). Their funds have consistently outperformed, with their 2019 fund finishing #1 among all commercial real estate funds that year.

In this episode, we cover:

• How Brad survived the 2008 crisis when banks called $500M in development loans
• Why the combination of high leverage + balloon payments is a death sentence
• The hidden danger of material adverse change clauses in loan documents
• How Ten Federal pioneered unmanned self-storage operations
• The vertical integration strategy that creates unfair competitive advantages
• Why most real estate operators actually harm performance
• Data science and machine learning in self-storage investing
• Building proprietary technology that now operates in 1 of every 7 storage facilities nationwide

Key Takeaways:

• You can survive high leverage OR balloon payments, but not both
• Deep operational knowledge prevents exploitation by contractors and vendors
• Automation + enterprise software creates massive competitive moats
• The best opportunities exist where sophisticated operators can outcompete mom-and-pop owners

This conversation reveals how crisis-tested experience, combined with technological innovation and operational discipline, creates sustainable competitive advantages in real estate.

Connect with Brad Minsley: 

Email: brad@10federal.com 

Website: www.10federal.com 

Company: Ten Federal (self-storage development, automation, and fund management)

Resources mentioned:

• Poor Richard's Almanac by Benjamin Franklin
• Poor Charlie's Almanac by Charlie Munger
• The New Personality Self-Portrait by John Oldham
• Death of Money by James Rickards
• Big Debt Crises by Ray Dalio

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Transcript

SPEAKER_02: 0:00

Welcome everybody to another episode of the Timeless Investor Show, where we explore enduring principles of wealth creation through the lens of history, philosophy, and practical experience. We aim to mine 5,000 years of recorded human history for patterns that transcend market cycles. As you all know, we spend a lot of time on this show talking about historical finance, great market crashes, historic figures throughout history, but We have a focus here as well to bring on premium, amazing guests who have built great businesses, gone through difficult trials, and have timeless wisdom to offer our audience, mainly for myself to learn from, but hopefully for you as well and the readers. So I am really honored to have Brad Minnsley join us today from 10 Federal, which is a fantastic self-storage development management company based on the East Coast. Brad and I share a few common investors. So I've been hearing about Brad for years now, and I'm really, really excited to have him on the show. I think Brad is a classic, timeless investor, a fantastic, fantastic contributor to our show. And I'm really excited to have him with us today. We're going to get into a lot of stuff, the GFC, building a self-storage business from the ground up, vertical integration, so many amazing topics we're going to hit today. But I just want to open it up to Brad. First of all, Brad, thank you for being here. And we'd love for the listeners just to hear briefly about you, your company, what you guys have built, and then we will launch into some awesome line of discussion.

SPEAKER_01: 1:39

Yeah. First, thank you very much for the opportunity to be here. And to anybody listening, thank you so much. Yeah, Brad Minnsley, 10 Federal. My brother and I started the firm about, oh man, 15 years ago now. And we, you know, present day, we're out in Raleigh, North Carolina. We operate a self-storage portfolio with about 5 million square feet across about 120 locations, totally about$400 million in assets under management. And I think we're doing pretty well at the wealth creation today, but that comes on the heels of a lot of wealth destruction. So, you know, you try to learn from the mistakes and I probably made more than most, I guess, to get here. But here I am.

SPEAKER_02: 2:17

Here you are, surviving, thriving, crushing it. We're going to get into all of that. I had a chance, everybody, to, I like to pre-interview our guests. We don't do a lot of guests. So when we bring on guests, I really like to have a Well-prepared thesis on what we're going to talk about, what we're going to go through. And Brad is an incredible guest. I cannot reiterate that enough. So, but we're going to start in timeless style. And I don't think many of you have gotten this sort of a deep dive before. Most of these shows, you know, Brad, you've done podcasts before. I've done podcasts. I listened to Bigger Pockets for years. Many of these shows start with like, how did you get into the business? And we're going to get to that. But I want to start with something that I don't think many of the guests have ever heard, which is what is the history of self-storage? Like it is an American I think it's an American thing, mostly. What is the backstory of, like, how did this asset class come to be in the first place?

SPEAKER_01: 3:07

Yeah, I mean, it's shocking it's not a New York Times bestseller. I mean, self-storage, how can you not be more excited about it? But, you know, look, like many things, it had a humble beginning. So, you know, I looked it up, actually. It started, the first recorded self-storage deal was in Fort Lauderdale, Florida in 1958. But it really started getting its going in the 60s. And it was very niche. It really... Uh, started to be done in the, uh, oil fields of Texas, very transient workforce and needed to put their stuff here, go that oil field, you know, where actions happen and come back at their stuff. So that's where it kind of started to happen. And what kind of quickly became, um, What became evident is that it ended up being a pretty good method as a covered land play. I think that was kind of really where it started to find its footing because, you know, you take a piece of dirt, you throw up a couple of cheap shed type buildings and you can rent them. And so, you know, your capex, your cost was low, your operating cost was low. You didn't really need to have people there in the simplest form. And where it started to really take off was in California in the 70s. California is starting to grow quickly. People are trying to figure out how to get out in front of the path of growth and hold land. And so whether you do a golf driving range or a storage deal, that's how it started to really start to pop up. And then you start to see, you know, real action. That's when public storage was formed in 1972. U-Haul got in the game a few years later. And it's just kind of gone from there. Now it's a massive industry. Yeah. Is

SPEAKER_02: 4:43

it a quintessentially American asset class or does it exist outside of the States? I mean, is this like Americans have a lot of stuff? So we're a consumerist society and it's like an American thing. Like, like, is it, does it exist in LATAM or Europe or the Middle East? Like.

SPEAKER_01: 4:59

We, um, I'm not sure it's a great reflection on us. I, if you look in the mirror, I think you'd call us a nation of hoarders. Uh, we, we are like 85% of the world market, uh, you know, for better or worse, take it, take it for what you will. Now the The rest of the world is, you know, whether they're becoming more like us and having more possessions and whatnot, or maybe they're just, there's been an unmet demand there. We'll see. But the rest of the world is starting to catch on.

SPEAKER_02: 5:24

Okay. It's just a slight detour. It's fascinating to me, like the quintessentially American real estate styles, right? Well, another one that comes to mind is senior care facilities. So I used to work with a number of Middle Eastern family office investors, and they were very interested in senior care. But culturally, senior care is something you would never, would never happen in the Middle East because the idea of shipping your parents off to a senior care facility is anathema to the culture. And so many of these Middle Eastern family offices were investing in senior care. They're like, it's a great business model. We would never do it because we find it to be incredibly morally unethical, but Americans love to do it. So we believe in the asset class, but it's interesting because we're such a, I mean, obviously we're both Americans. We invest here. So we only know the American mindset, but there are these things that are like, they just exist in the States. Like, I don't think senior care is a huge market in other countries because culturally they don't do that. It's fascinating.

SPEAKER_01: 6:23

The thing that I think people would be surprised by is that how big, like I say, big industry. So let me, let me try to frame that. So there's 53 to 60,000 storage facilities in our country, depending on who you talk to. So what does that represent? Let me convert that to units of McDonald's. That is three times the number of all McDonald's. If I were to frame it in dollars, we spend four times as much storing our own stuff each year than we do going to the movies or watching just anything out of the Hollywood box office. I mean, we're at$40 billion a year revenue industry. It's just kind of staggering how big it is.

SPEAKER_02: 7:02

That is shocking. I'm shocked. I mean, I love the McDonald's comparison because it's another quintessentially American thing, right? And so like self-storage is even bigger than McDonald's. I mean, that's incredible. That's awesome. All right. Well, thank you for that background. That is cool. I didn't know that. Makes a lot of sense that it would have kind of evolved. The cover land play piece makes a ton of sense because it costs nothing to put these things up. And then you're like, I can rent it. So amazing. That's awesome. Entrepreneur's existence everywhere somebody had the idea and it has turned into a massive booming business and I have tons of questions that we'll get to down the line about you know the longevity and and and strength of the business I've always I'm not a self storage guy I'm a multi guy but it's always been interesting to me like I can't envision storing stuff in a storage facility I don't know if you personally store anything but it's it's amazing to me that there's such a massive demand for it we are a nation of hoarders like you said so good for us so I I love in our pre-interview discussion, you described yourself as a classically trained economist with a kind of a classic Wall Street style pedigree training. You went to great universities. I love to just get kind of your Where'd you come from? Like, what was your training and education? And I really want to dive in. You have some really interesting information about the GFC and being in a development firm. I'd love to hear your foundational, your origin story, your origin myth, if you will.

SPEAKER_01: 8:31

Yeah.

SPEAKER_02: 8:31

Not

SPEAKER_01: 8:32

a myth. Sure. I have a brother, Cliff. He's seven years younger than I am, and he and I own the company together. But we grew up entrepreneurial. I mean, we played video games that were building businesses. We got that from our mother. I knew I was going to go into business before I left high school. In fact, we were starting companies when I was still in high school. In college, to me, I thought that business was economics. So I started down the path of taking economics classes and really found the subject matter interesting. There's a lot of competing theories, everything from modern monetary theory to supply-side economics, many in between. And And, you know, everybody has their own opinion as to which ones make the most sense. And we can certainly double click into that later. But really, that ended up what was most profoundly helpful about that was the looking at the historical perspective of the economics, because, you know, that's where now that I'm 47 now, when we, you know, when you have enough years under your belt, I guess you start to zoom out and you appreciate the historical context. That was first rooted in the lessons that I received in college in economics. But in any event, you know, set that aside. Where did the more formative education come from? Well, again, going back, I can thank my mom for that. She ruined my plans freshman year of college to go work on a cruise ship and float around the Caribbean sucking on rum drinks and, you know, having a good time. Instead, I found myself in some dude's office that was the brother to a lady she worked with, you know, and he was a real estate developer. I didn't know anything about real estate. This was summer of 96. Yeah. And super charismatic guy, though. His name's Don Phillips. He's been tremendously successful. But, you know, he was, he was, we're doing modular homes at the time, selling them, making a great profit. And I started doing math. I was like, man, this guy's killing it. And this was on like a small housing subdivision. And so, you know, I kind of got hooked immediately. I ran out. I was like, how else can I figure this out? I got my real estate broker's license. I got my general contractor's license. And then teamed up with Don. And he had, He, he got out over his skis and had gone bust on the single family home stuff. So we were, I got there right in time as we were starting to reinvent ourselves as a multifamily development shop. So it's me and him in a living room in February, 2001. And seven years later, we were the 11th largest multifamily development company in the nation judged by national multi-housing council, uh, in 2008. So, uh, we had, um, about 500, well, about$700 million of, multifamily developments in development at that time and things were going pretty great. But that was... That was right before the big GFC. So anything more you want on the background there, or is that what you're?

SPEAKER_02: 11:32

Yeah. I mean, I, I, I'm kind of curious, like, so what markets were you guys in the Southeast? Like what markets were you guys focused on at the time?

SPEAKER_01: 11:40

Yeah, we, we started in, you know, we, we're blessed with a good backyard. We're right here, you know, Raleigh, Durham, North Carolina, you've got great universities, a great research triangle park, just this great engine of, of growth. And so, you know, being in a good market can solve a lot of bad performance. And so we, we, we probably thought we were better performers and we really were better operators. Uh, but you know, just the same, you know, um, you know, the rising tide floats all boats. So from 2001 to 2008, you made everybody look pretty good and we were no exception. Um, but he, um, he had a friend in Florida, so that's how we decided to go start doing stuff in Florida. And, and, uh, that market was a, he ended up in Tampa and that was, that was a perfect place for him at charismatic style, uh, you know, really traveled well there. And so we started doing deals in Florida. And then, you know, if you're, if you're got grand ambitions, there's nowhere bigger to go than Texas. I mean, go big in Texas. So that's where we went to. We went and did twin 30 story towers, a project called mosaic. Um, that deal was a$220 million project. At one point, it was the largest privately funded project under construction in Texas. We're in Houston, right on Herman park. Um, it won best ULI, uh, best, best real estate project by Texas ULI the year it delivered, which was two 2008. Um, so, you know, we had, we had a heck of a good time. I'll be honest. Yeah.

SPEAKER_02: 13:04

Well, and we all know how the GFC ended or what, how this, we, we, we, we, we can guess, and you're going to describe kind of the, how we got to, you know, the, the, uh, the, the crash and then the rising again and whatnot. I I'm curious to hear, I mean, one of the things I love to dig into on this show is mindset, right? So, um, As you're growing and you're expanding dramatically, what was the internal conversations around risk management, what the market looked like? Was it there or was it sort of like, because obviously, I was in college at this time, so I was totally not acquainted with what was happening other than I would see empty subdivisions around Sacramento with the proverbial dust ball floating through it. What was the mindset and the environment with yourself, your partner, and what you witnessed industry around that time. I mean, obviously we know from the big short, some people understood what was happening. I mean, were you guys kind of aware of that or was it like, no, the music will keep going?

SPEAKER_01: 14:08

So one theme I've learned over the course of my career is that there's these like misperceptions about things in our industry. And like one of the biggest disconnects, this is so strange when you think about it, in real estate development is that we want to go do a real estate development project. So what do I do? I hire an architect. That guy's licensed. I hire an engineer to take the architectural and make it into structural plans. He's licensed and credentialed. I go out and I get a general contractor. He's licensed and credentialed. The only fool in the room that doesn't have any credentialing is the developer. We're fully unqualified to step in here and take tens, if not hundreds of millions of dollars and try to go create a project. And you have to kind of have like a, I don't know if a big ego is the right word, but you certainly have to have a healthy dose of confidence, I guess you could say. And so that is where there's a fundamental breakdown in the process is that a developer never asks himself, should I do this? He just asks himself, could I do this? Could I do this? Does not bring about the best outcome. Right. So we're like, can we do a 30, twin 30 story tower? Yes, we can. Should we do it? Maybe not, but here we go. So, So, and there's, that's, that is, that is so permeates through so much of that development community. And so we just go, uh, it is the most go, go, go mindset of a lot of these developers. And that's not everywhere. It's, it's a, it's a characterization of a, of a subset, generally the ones newer to the game who haven't been burned yet. Um, I'm, I'm an aviator and, you know, like there's an analogy that, uh, that we use in aviation that they're, they're bold pilots and they're old pilots, but they're no bold old pilots. That's kind of true of developers. I love it.

SPEAKER_02: 16:00

That's so true.

SPEAKER_01: 16:01

So, no, we couldn't really spell risk. Now, I was in my 20s. When I put that$220 million deal together, I was 27. I didn't know anything. I was still immature in my career. It just seemed like if nobody was telling us we couldn't do it, then we might as well do

SPEAKER_02: 16:20

it. Yeah, you hate to paint everyone with a broad brush, but I would sort of agree. I mean, I've never gotten into development, and I never did it because I, I would say for two reasons. I always thought the returns, and this is debatable today, but I always thought the returns on value-add multifamily were comparable to the LP returns on a development deal, but with significantly less risk. So then I had the question of, well, why do it? I think the answer is you can make a lot of money, and there's certainly a lot of you know, ego involved in being a developer because you build something great and there's like a lasting thing that you've created. You know, it's not quite the same feeling internally when you take a 1970s complex and turn the units and put hard countertops in. It's not quite the same thing. But at the end of the day, I mean, a developer needs to be sort of a visionary. And in order to be a visionary, you're kind of running at the bleeding edge. And like, you're right. I mean, I think there's probably a psychoanalysis of development in general that lends itself to boom and bust cycles. And obviously we really applaud great developers. Like it's like, oh, you know, so-and-so is incredible. He built this awesome thing. You know, we're seeing that in every market right now. A lot of developers are really struggling. I'm sure you see it on the East Coast as well. But I mean, it's like that is the truism of real estate cycles is like developers look great and then they crash and they look great and then they crash. It's much more boom and bust than other real estate asset classes, in my opinion. So... All right. Well, so let's dive into your crucible moment. So the GFC hits. You guys have two towers going up in Houston. I want to get into, like, what happened. How did you survive? How are you sitting here doing a podcast interview today with that much under construction, that much debt? Like, tell me, tell the listeners, how did you survive? What happened?

SPEAKER_01: 18:12

Yeah. So the first thing is... Okay, so it's like February of 08. We were a multifamily for rent company, but that was during the condominium craze. So you can't, you know, you're a developer, you can't pass up a good time. So we became a condo conversion. We started converting everything to condos. February 08, sales just stopped. I remember being in Florida. We had a project on the Southwest side of Tampa and sales just stopped. But things happen slowly in real estate. We still had banks offering us term sheets up through like September of that year. And then they finally got wise of the fact that like things were going bad. And then immediately the bank started to come for us. So they started to sue us immediately to call our loan. And, you know, what we didn't know behind the scenes was that, you know, there was a big credit tightening going on. The feds were starting to, you know, steepen the requirements on the banks. The banks were trying to then, you know, pare down their loan exposure and get more cash. And so they just want to get repaid as fast as they could, any way they could. Learn about a terrible little clause inside of your loan documents called a material adverse change clause. If there's one takeaway I can give you as an Easter egg from this whole conversation, don't let a material adverse change clause be in your loan documents. What it basically says is in the lenders, you know, if the lender determines there's been material adverse change to the project or your financial condition, it can call the loan. Well, that's extraordinarily subjective. And they had it and say called our loans, which totaled$500 million across 27 banks. Now, um, we had 200 people working for us within 16 months. We were down to eight. Um, We were basically funding ourselves off of development fees, which stopped because the development had stopped. We could barely keep the lights on with the eight people we had off of the meager amount of development fees on the deals that were maybe open, maybe leasing up. Meanwhile, every single fantastic top floor of the high rises around us law firm was now suing us or pursuing us. And so we had to figure out how to survive this thing. And what did survival look like? And I'm, there's a lot of different ways to approach that. I'm just going to tell you the one that we went down, which is not, I'm not going to say this is what I would do or recommend, but I'm just going to tell you the story because this is where we went. So that very charismatic guy that I worked for and I was, I was a partner. I was the only other partner in the firm. So it was really just me and him, but he, he called the shots to a large degree. And what he said was after the first banks sued us, he said, you know what, if they're going to do this, I'd rather be the, claimant, then the defendant. So we turned around and sued all the banks. And we went to war with them. And we had one little attorney who had been kind of an ambulance chaser, didn't really even know anything about real estate, but he agreed if we put him on retainer, he would just sue all these banks. And so that's where we went. And I had this like really naive, again, it's all about misperceptions. Here's the second misperception I had in my career was that the legal system works efficiently. It does not. with discovery. And what we kind of figured out was that it didn't cost us a lot of money to kind of bury the banks in discovery. And so, you know, this was still pretty early. You know, this was, you know, 2008, 9, 10, they didn't really have the technology, certainly not the AI, things to like process discovery efficiently. So we'd send them in thousands upon thousands of pages. We'd send a U-Haul truck of documents. We'd put in the AIA manual for the property and all that, just bury them with paperwork. But where we kind of weaponized things was with the emails. So the judge would say, okay, everybody turn over their emails. And so they turn over emails. We turn our emails over and we'd look to see who had been carbon copied on the emails. And if they didn't provide the copy of the email to who had been carbon copied to, so we could see if it had been forwarded on or who else might be involved, then we could go back to judge and say, hey, they didn't provide these emails. And so what we ended up doing was just kind of keeping a steady supply of those in our back pocket that we could go forward with. I'm not saying it was right or wrong. I'm just telling you it was guerrilla tactics. It was survival. It was survival. It

SPEAKER_02: 23:11

was war. It was war. I

SPEAKER_01: 23:13

understand. But what ended up happening, so what we couldn't see at the time, but we now see from behind the scenes, was that the feds were putting a tremendous amount of pressure on them to eliminate their most toxic debt. And the most toxic debt was rated on a couple of things. Number one, who was suing who? If the borrower was suing the lender, that was a had to strike, you know, that was, that was a bad strike against the loan. If we weren't paying the mortgage or paying the interest, that was another bad strike. If we hadn't completed the project and we learned this actually through discovery. And so we stopped construction on the, you know, the one yard line for all these projects. So it wasn't, you know, but technically it wasn't done. And so that was another major strike against it. And then in the consequence of having all these strikes and us being literally, we would hit the top of scale on the most toxic debt they They then had to reserve tremendous amounts of cash against us, which was, you know, that was a scarce commodity for these banks. willing to come in and buy these properties, you know, albeit we had to get down to a really low price, but we'd have to settle something with the lender and whatnot. And so like the last deal I did when I was there, we built this deal for$72 million. We had$65 million of debt on it. So you can get an idea of how highly leveraged we were generally going. I negotiated that those lenders down to walk away for a payment of$40 million. And we had a buyer waiting in the wings for$44 million. So we took a project we built for$72 million, sold it, Sold it for 44 million and made$4 million. So, you know, I'm not going to say that's a playbook anybody should follow. It's the Eastern Front, you know, World War II, you know, grab a machine gun, run at the bunker method we took. But, you know, we learned a lot along the way. And the thing is, so just Before I get into how that became Rise of Phoenix from Ash type thing, I'll pause there in case you had any questions on any of those gory details. Yeah.

SPEAKER_02: 25:42

Yeah. I mean, one of the things that we kind of discussed in the pre-interview is what happened with your guys' large twin tower construction in Houston. I mean, that was a big project. Was that the biggest project at that point for you guys?

SPEAKER_01: 25:55

It was. I'd put that financing together with Chorus Bank out of Illinois, out of Chicago. And that project ended, unfortunately, in a foreclosure. It was the only one that went to foreclosure. Every other one, we basically did some kind of a short sale. But that one, Texas was hard in those courts. And we didn't have unilateral control over it. We couldn't quite do the guerrilla warfare we're doing. So, Corus took that one back,$144 million loan. And I think that might have been the straw that broke the camel's back. The FDIC closed that bank down the following week. So, I don't know if we can take credit for taking a bank down. It's not something I'm proud of. But, you know. Yeah. A lot of banks went down.

SPEAKER_02: 26:45

A lot of banks went down, and I'm sure it wasn't just your loan that brought them down. But, I mean, that's incredible. Tell me about your mindset at this time. Where were you mentally? Were you just like, I'm done? Did you have children at the time, a family? Oh, yeah. Where were you? I

SPEAKER_01: 27:05

was having a kid every five minutes. I have five kids, and they're all two years apart or less. So, yeah, you know, it was– Oh, man. You know, um... the most important element, like if, and I'm sure this is true in any, in any, in any industry or any, anything, any career. I think the guys that ultimately do well in the long run, like one attribute, I think that's really important is just grit. Like, like we just never gave up. And why? Number one, we had some personal guarantees to defend against. So like, it was like, there's one thing to lose the properties or another thing to lose your house. So, you know, when your back's against the wall, you know, necessity becomes a mother of invention. So, you know, we just stuck in there and grit. And the grit does a couple of things. Number one, we figured things out. Like we figured out the guerrilla tactics in the litigation and that time gave us opportunity. Yes. You know, number two, you know, I don't ever want to go through that again. but I'm not, I'm not afraid to, you know, you end up battle hardened. Um, and, not just battle-hardened because you got through a stressful period, but it gives you the confidence that you know that if you're back against a wall, if you sit there and think hard enough, you'll find a solution. And confidence is important. It gives you the steady hand in the storm.

SPEAKER_02: 28:42

Yeah. I'm curious. I mean, I want to get into your rise and kind of moving past this sort of unprecedented real estate meltdown, as we all know. But you knew a lot of guys. I'm sure you knew a lot of other guys in the industry. And you mentioned grit, figuring it out, confidence. What would you say is the commonality of the guys that flamed out and kind of never came back? Is it a lack of grit? Because there's many people that lost their shirts in this period. And I think from our conversation, you effectively lost your shirt also. But you came back. What is it about the guys that you knew that didn't come back and they ended up going to banking or getting a regular job? Like what, what is the difference? Like what, what was it about them?

SPEAKER_01: 29:29

Yeah. Um, look, everybody is going to make the best decision for themselves. Uh, you know, I think the guys that, that stayed through it, you know, it's, it is that kind of the grit that, you know, if you get knocked down, just get back up again. You know, there's a Japanese proverb, like, you know, if you get knocked down eight times, stand up a ninth time, you know, I love that one.

UNKNOWN: 29:48

Yep.

SPEAKER_01: 29:48

You know, you, um, I think that was probably the primary one of the guys that, that saw it all the way through. Um... And, and part of that is, is willing to make that investment, right? Like, like we didn't just think about surviving. We, from, from the beginning, we started to think about, you know, well, look, this, this won't go on forever. What does life look like after that? Right. And, and that is, you know, and I think part of that a little bit comes down to like the values. You know, the guy I worked for, we had this saying, in fact, it was, it ended up being on a sign above a door. It's, you know, it's not what you start But when you finish, um, and what that, um, the, the two things that, that gave us the opportunity to start our company were the combination of, of grit and values. Um, even though we took a very guerrilla, uh, type approach to combating these banks, there wasn't anything we did that was, uh, you know, uh, Legally wrong. We're just soldiers on a battlefield. I don't know that a soldier in Russia and Ukraine wouldn't be happy to have a beer with one another, but right now it's their job to fight each other. That was true with us with the loan officers. On that property that we took the debt down from$65 million to$40 million, the guy who sat across the table from me during that experience is an investor with us today. Amazing. The investors who we protected by staying in there and fighting the fight and taking some of the proceeds of these short sales to help them get some, if not all, their capital back were our launch investors in 2010 when my brother and I went out on our own. So it's just staying committed to the cause, I guess.

SPEAKER_02: 31:45

Yeah. So last question on the GFC. I mean, looking back now, what like what's the the biggest thing you learned that you kind of carried forward with you obviously don't leverage too much don't do development seems like you haven't really done I mean I think you've done some development but not quite at the same scale like what would you say is like the other than survival grit using the legal system fighting tooth and nail like is there any like timeless learnings that came from that period that you're like i will never commit this error again or advice for other guys i mean because you know right now there's a lot of developers that are kind of in your your shoes from 08 they're in the they're in that situation again right now so it's like what what did you what did you take from that that you'd advise like any younger developer right now like don't do this or be mindful of this

SPEAKER_01: 32:33

yeah so um I'm going to give you two, two buckets of advice. First one's going to sound like a grandparent because, you know, and I'm starting to understand why, because as I get towards that age, I'm, I'm starting to understand like you don't, you eat your vegetables, you know? Yep. You can survive high leverage and, And you can survive a bullet payment, balloon payment on a loan, but you can't survive both. It works fine if everything's going great in the market, but every couple of years, the market's going to be great. Every couple of years, the market's not going to be great. And so to stay out of this, you can have high leverage as long as you have really long term. Going back to misperceptions, people think, like in multifamily, people think, oh my God, the multifamily industry tanked. Well, let's break that down. During the GFC, multifamily rents only went down, depending on where you were in the country, 3% to 5%. That's not going to default a single loan anywhere. Your debt service coverage ratio, that is a blip. That is not the problem. But what happened was with the rents coming back and with credit tightening, leverage from the banks went way backwards without leverage. People can't pay as much for their properties. Their property values tumbled. And that's how you had a$72 million property going down and being worth$44 million. So a 3% to 5% sniffle on rents became a catastrophic and traumatic drop in value. So if you'd been 95% levered at that time and you had long term where you didn't balloon out during the GFC, you'd have been fine. If you'd also been$40 million levered, we would have been fine also. So don't set yourself up in this crosshair going into it once you're in it just just just work your your butt off uh yeah you know there is a solution there uh you just haven't thought of it yet just hang in there yeah

SPEAKER_02: 34:37

well and the interesting i guess the corollary question to that before we dive into kind of 2010 onwards is the material adverse change component of the loan document would mean that you're still sort of that's not a loan no material adverse change and do lenders usually give it to you because we've had this same dialogue on what does that mean when does that get called and well you know like that's not a bullet payment yeah okay and you're are you successful getting that done because i've found lenders to generally yeah yeah okay

SPEAKER_01: 35:08

some lenders some lenders more than others um yes right but uh but it's a non-starter for us because yeah it it's an embedded balloon payment that that you don't want to have yeah

SPEAKER_02: 35:21

yeah well it's interesting like that That's your wound that you're now focusing on never having happen again. I think this generation of value-add multifamily guys like myself will probably never use three-year cliff bridge debt again for a value-add project. My entire generation of guys that came up 2016 on will probably never use that product again. It's like the Great Depression era never used margin loans again. They just were like, I swore off it, swore off this kind of debt. You're really mindful of that. I will probably never use a three-year bridge loan again, because it's been, you know, we've, we've been fortunate with our portfolio to kind of navigate those, but a lot of guys in Texas in particular have lost their shirts on that bridge product and, and they'll never use it again if they survive. So, all right. So 2010, you and your brother leave with the shirts on your back, I think is how you described it. And, and so you went back to multifamily, right? They were not yet to self storage. So I love to hear kind of where you guys went, what what you did and why you didn't jump into self-storage immediately. Because obviously that's been a huge winner for you guys, but you didn't do it. So tell me about that, the rise from the GFC.

SPEAKER_01: 36:34

So my brother and I started our company, 10 Federal in Tampa, Florida in June of 2010. And I remember our first office, like you talk about no shirt on your back. Our first office, the monthly rent was$145. It was a single office and we sat like perpendicular to each other and we couldn't both back our chairs out at the same time. Otherwise, we'd hate each other. But, you know, Tampa's terrible office is hot. We'd gone to a yard sale. We bought a fan for$5, and it was$5 because it lost its front cover. And you had to be careful not to stretch back and put your hand in the blades of the fan there. So we had our adjacent tenant taught people how to sing, high school students. So we'd advance all of our important calls by 3 o'clock each day because otherwise there'd be teenagers belting Katy Perry songs at you. Amazing. Start. In 2010, there were no new investors, right? But we're fortunate that we had done right by our existing investors. And they said, so Brad, we will support you. What do you want to do? And we had been so burned by the balloon payments. We said, look, we want to go the other direction. And so housing and urban development, which most people know for low-income housing, we didn't go to that side of the house, but we went to their market rate lending side. And HUD has this loan program for like an acquisition loan. It's called 223F loan. It's a 35-year term loan with a 35-year amortization schedule. So you're never, ever going to face a balloon payment. And so it got other awesome attributes. The federal government's your co-guarantor, so the rates are artificially a little bit lower. The leverage is very high, about 80, 85%. So we went out and started acquiring multifamily. And our, you know, going back to my econ background, I said, look, TARP was going on, right? We're printing$800 billion. Sounded like a lot back then. Now it doesn't sound like it. But, you know, we're like, this is going to cause inflation. Like, we should buy hard assets, get fixed debt in arbitrage, you know, that, you know, the appreciation of the hard assets, right? And I said, this is going to be great. You know, we buy these deals. It's going to probably take 10 years before we want to sell them. But, you know, I think this is going to be a great business plan. And so our original investors said, okay, let's do it. And so we bought, you know, two properties within the first 18 months. And we, you know, tackled a few more. with some other new investors as they started to come back. But over the course of five years, we'd only built off about a... 1500 unit portfolio. That was about$150 million portfolio. And we were, we didn't have any money to invest in it. We were basically a glorified broker. We couldn't really put our brokerage fees in it because for love of God, I had to feed myself somehow. And so, you know, we ended up getting like, like tiny, tiny, tiny bits of ownership in this. And it was so meager that we actually started, we took property management in-house and and did it ourselves just to pay the bills. And that was hard, man. Like it was slow going. We're like, how on earth, you know, like we got this portfolio. It was great. It was stable. You know, we're making a little bit of money, but we weren't on a path to wealth and riches by any means. Like we couldn't even raise more money until that first portfolio went full cycle, which by the way, the last property just sold three weeks ago. And that cohort of properties returned a 24% ROI in five multiple on the equity. So we were right. But we have, you know, we'd just be raising fund two now. So,

SPEAKER_03: 40:15

you

SPEAKER_01: 40:16

know, so that was up through about 2015. And we, you know, my brother and I said, look, how do we get a bigger piece of the pie? And we said, you know what, let's vertically integrate through the development and construction piece of this. So, you know, in a development deal, a developer might get paid a development fee for 5% to 10% of the total project cost. The general contractor might pick up another 5% to 10%. There's acquisition fees. There's finance fees. There starts to be a larger body of fees But we have to go develop the multifamily deal. We have to be the GC on the multifamily deal. And these are like complex builds. I mean, I think we counted up one time. There's like 32 subcontractors. We're going to be like, not just subcontractors, but like, like disciplines of subcontractor plumber, you know, all these frame or all these different guys.

UNKNOWN: 41:10

Yeah.

SPEAKER_01: 41:11

So he said, let's start with something simpler. I said, well, let's go do self-storage. And I had flirted with self-storage right out of college. The guy that did multifamily had a partner who wanted to do self-storage. So they had to decide which one were they going to go do. This is the mistake of youth is I'm 20. I judge which industry do I want to be based upon how exciting is that going to be at a cocktail party and how likely am I going to get a date? I mean, this is like a terrible way to evaluate what's going on. industry go to you should like look at it like here's what's a competitive landscape what's the capital market like what where can you build asymmetric opportunities and but now i made a you know immature mistake as a 22 year old so we went i signed up in multi-family but i said i had exposure to self-storage it's simple to build we have eight sub trades and so we said okay let's go let's go build self-storage so we took our bright idea down to the bank and uh the bank said what do you knuckleheads know about uh you know doing self-storage you never even operate one go operate one first prove you can do that and then we'll maybe give you a loan to build one so i said okay great so we went back to our investors we said we'd like to buy a self-storage deal so we we bought it and this was in august of 2015 and

SPEAKER_02: 42:24

right before it got i mean your your market timing is incredible like 2010 to buy a bunch of stuff on hud loans 2015 self-storage wasn't really it's kind of like mobile home parks too like i feel like 2015 to 2020 that industry just took off but probably 2015 nobody's looking at it yet right

SPEAKER_01: 42:39

no it was um And it's still pretty good. And we'll get into some of those metrics in a moment. But here we are, August 2015, by this thing. And new technology at the time, cameras you could watch over the internet. This is like, holy cow, I'm so excited. I mean, I'm a technologist. I've been coding since I was in high school and putting printed circuit boards together. So I was like, put this monitor up in my office, start watching what's going on at our prize storage deal. And literally, I'm watching our manager sit at the desk with his feet on the table uh there's like three people that come in each day and i'm kind of sitting there i'm like man rewind the clock to like let's say 1995 you know here's 2015 like if you asked a person in 1995 which of the three industries would not be automated the bank teller you know the folks washing your car or the the dude renting you a storage unit i don't think anybody would think renting the storage unit would be the one that's not automated because we moved to atms we moved to the you know wash bay they can wash a prius or an expedition all in the same bay and here's self-storage we're still renting with a person at the office so we we set about figuring out how to rent a unit through the website um there was no off-the-shelf technology to do this i mean i was taking i was 3d printing 3d printing had just come out where we're 3d printing some parts and trying to hook up lift master things from a residential garage and wiring stuff together no one got electrocuted we but we did finally after about a year figure out how to rent a unit through the website, how that communicate to the controlled access gate system at the property. And so a person could rent a unit, you know, sign their lease online and then get into the facility and get to their unit. And so we fired our manager and went unmanned. And then it took us 12 months. One,

SPEAKER_02: 44:31

one, one building, right? You guys, this was the first property. Okay. Got it. Okay.

SPEAKER_01: 44:35

So here we are, you know, like August ish, 2016, September, I guess. And we had never rented. The best month that property had in the 12 months we'd owned it to that point was at least 33 units in one month. The first month we went unmanned, we leased 48. And we're like, holy smokes, this is great. But what I started noticing were a lot of people were moving in after hours, sometimes in the middle of the night. I was like, oh my God, maybe we just let in the entire criminal element of Durham, North Carolina. But I call these people and it's always the same story. It's a kid who's going home because he got kicked out of school and whatever. He hasn't done anything with his stuff. His flight's next morning, and we're the only show open at 8 p.m. Our family's coming from Florida. The U-Haul broke down. Now they're there. The CubeSmart's closed. So we had a monopoly on the market because everybody else, nobody else could rent online. That did not happen for five more years until COVID came around. So here we were. cracked the code on unmanned and we said okay this is more exciting than the vertical integration on on construction now we actually did build a couple storage deals the lender did let us do that and but then that was it then we started raising funds and we started developing more technology to do the automated self-storage and you know if you kind of cascade that quickly a quick preview of what's to come 2017 we did our first fund it was 10 million 2019 we did a 32 million dollar fund 2021 a 45, then 23, 115. Now we're raising a, you know, 150 plus million dollar fund. Amazing.

SPEAKER_02: 46:19

And it's, it's interesting too, because I, you know, we've looked at, we've looked at raising a fund here and been kind of mulling it and working over it. And I find that, Like most guys with your background and my background, right? Classically trained, some sort of Wall Street, whatever background or like, I got to go out for$100 million fund for my first fund. Like, I love that your first fund was 10. Like, I'm sure everyone was like, why don't you go for 25? Why don't you go for 50? Right. And it's like, start small scale. I'm like, I'm sure you got pressure at the time that was like, hey, why don't you go bigger? Like, think bigger, go bigger. And you're like, not 10 is good. Like, let's let's do a manageable size and execute. Right. Like, was that Did you get that feedback? Like, you should go bigger. Like, you should try to do a bigger fund.

SPEAKER_01: 47:02

Yeah. You know, everybody loves to kind of tell you what you should do. We're like, I don't know how we're going to raise$10 million. Like, this is going to be hard. The last deal we raised, the deal we bought was$2.4 million. And I think we raised like 800 grand. And that was not easy. But we just felt like- How did you do it?

SPEAKER_02: 47:20

How did you do it? I mean, for my own edification, I'm curious. How did you raise 10 when your last deal was 800K?

SPEAKER_01: 47:26

Yeah. you know, sometimes it's better to be lucky than good. And so we just happened to be- We're

SPEAKER_02: 47:32

still in pie.

SPEAKER_01: 47:35

Let me get a few lucky breaks. But, you know, it was a jobs act. It was on the upswing of crowdfunding. So we hooked up with, you know, one of the groups that was early at the time, CrowdStreet. And they even told us, they said, Brad, we think we can get you about a million bucks. Well, darn if we didn't get six and a half million from them. And then, you know, the automation thing was really intriguing to people. And so like, you know, that, that kind of existing investor base we had basically filled out the last three and a half million, but that took us 18 months to raise 10 million. You know, now we raise three, four times that in a quarter. So, you know, it's, but, you know, we couldn't have done it without the crowdfunding.

SPEAKER_02: 48:21

Good timing. As we talked about, the start of that industry was easier to get on their portals and kind of raise stuff. But that's, I mean, that's amazing. So, you know, Brad, the thing I recall from our pre-interview that I just think is awesome, and I really want you to kind of hone in on is, you and I talked a lot about how guys that come into these businesses are sort of trained on a notion of like scale, scale, scale, and don't work in your business, work on your business, be a visionary, think about, growth projections like just all this stuff right and that leads to third-party management third-party contractors third-party everything right where you're just outsourcing everything to other people and a lot of the you know I'll speak for multifamily in particular but a lot of the like guru coaching world really preaches this point right and I am guilty of that myself when I got into this business we thought about scaling and working with best-in-class third-tier management companies but you guys made the decision to go in-house and I understand there was an economic pressure as well but you know you made that decision I know you mentioned to me that you guys got caterpillar license like like what I really admire about your approach is it's like the opposite of the typical advice and and like the things you're describing right looking at the video camera seeing the manager these are things that guys that are getting into the guys and gals getting into this business are not taught to think about it's like look at the spreadsheets from a high level and scale and I I I love your approach. I've had my road to Damascus conversion on this topic, and I'm very focused now on vertical integration and control of every aspect. Tell me about that evolution in your process because I feel like from hearing your story, a large degree of your success and the fact that Ted Federal has produced consistently high returns and consistently raised more money is due to that. What was your conversion point on that? Tell me about the control of every aspect. Again, monitoring the video cameras is not something most people that do this would ever even think to do like that's awesome so

SPEAKER_01: 50:32

yeah so I'm gonna give you I'm gonna give you a two-part answer one is that what what I think most people don't realize is how many operators actually do more harm than good I'm gonna come back and actually quantify that for you in a moment but I didn't understand that until until we actually operated ourselves and like to go back you reference capital equipment so like like we we want to understand how everything on our business works down to the most granular detail all the way down the chain. So when my brother and I decided to go vertically and grand to the construction, we got unlimited GC licenses, both of us. We decided we wanted to do site work because site work is black math. A lender's never going to understand whether the site work on this site should be a million dollars or two million dollars. And that lack of knowledge is an opportunity to put in a market rate but on the high end of the market rate uh bid for your own work uh and roll that profit in as your equity so it was a it was a fat equity opportunity but literally to to to be prepared to defend ourselves like if you know how to do everything you can drop in and triage anything and so my brother and i are certified on a you know caterpillar you know 963 for track front loader a 32 any eight uh tracked excavator a d5 dozer a you know skid steer you name it i can do it. Not well, but I truly understand it. They're like most granular level. And that's important. Like, like, like if you don't have that level of knowledge, you're going to be taken advantage of a classic example. I remember, you know, a guy's learning from the construction said, he said, I'm going to show you something. And we pulled out this bid we had from a general contractor to do a multifamily deal. This was, you know, this was when I was at the development company in Tampa. He said, this is a back This is a valve that keeps the water inside the apartment community from going backwards into the municipal supply. And he pulled it out and here was this bid from the general contractor. This was the price they're going to build it for. And it was cost plus, right? And so they had all their sub bids. And we went through it and the backflow preventer was in the fire alarm sprinkler guy's bid because he has piping. It was in the plumber bids deal. And it was also in the landscaper. And he said, again and triage a problem. Now, why would I say most, you know, it may not most operators, but like a lot of operators actually harm performance. So this is another misperception is that, you know, you have to create value, like you're going to deliver a double digit return. You must be able to create value through your operations. Well, I'm going to take single family housing and you can get on AI and in fact, check me on this. Okay. Single-family housing from 2000 to where we are today has a CAGR, compounded annual growth rate, of about 4.5%. That's nationwide. I mean, that's like rural America. That's blighted areas. If you take a subset of like, just give me the Sunbelt or the good markets in the Sunbelt, that's like 5.5%, okay? So if you just owned a single-family home from 2000 to 2025, you're going to make a 5.5% return unlevered, all right? Unlevered, right. Now, if you lever it, like lever it. let's just say you lever up to 75%. Okay. And let's just say you rent that home and it pays the mortgage. You're up into like a 12, 14%, something like that. I'll have the math in front of me, but you're into double digit returns. And the reason I'm picking single family homes is there's no operational component. If you just own that home and do nothing to change it and sell it 25 years later and use 75% leverage along the way and rented it. So it just covered its mortgage You're into double-digit returns. So as a real estate operator, if you're not into like low double-digit returns, you're actually doing more harm than good as long as you're using modest leverage. And that's like the tragedy kind of in all this is like, you know, like you said, folks come out, this is a knock against them. There's some that are very smart and they make a lot of money and make great investment decisions. But there's a lot of them that want to skip that hard step of really understanding the operations. so that they can defend against the bad. They can make more value, defend value, and not do harm. And going back to the economics for a second, you talked about$800 billion in TARP. Now we're doing$8 billion in the last eight years or whatever. The CAGR on single-family homes from 2000 to 2025 has been 8%. So you don't have to do as much operationally. Just use some leverage that you're not going to get hurt with and let let let it run and you're going to do well

SPEAKER_02: 56:04

yeah amazing yeah i mean i'd love to uh i totally agree with you and i i think obviously real estate over time has been a proven performer especially on a levered basis the the wrinkle is always your debt and your debt terms and does your debt permit you to hold for 20 years or do you have a three-year cliff on it which is hence my comment on the bridge debt big mistake right in the in the in the scheme of things. One of the things that really struck me about what you guys, in addition to the, you know, the maniacal in a good way, focus on vertical integration and control. I mean, you guys have built new products. You guys have invented new technology. Like it's really cool and impressive what you guys have done. I love, I mean, if you want to share the, I think the DaVinci lock is the, I think is what you call it. The, you guys have built new products. I mean, it's incredible.

SPEAKER_01: 56:54

Yeah. So, so we, uh, when we took our self-storage portfolio unmanned there was a part of the workflow that we had to solve for which is when you when you don't pay your rent like you have your lock on your little master lock and then if you don't pay your rent the manager comes out and puts their lock next to it now you can't get in you know until you pay that manager they take it off well oh man we didn't have we didn't have anybody there and we tried like mad to make the electronic locks work but they were costly they failed they there was nobody there to teach people how to use them so we started labeling mechanical combination locks just you know as a four digit code and we had a label and might say 10 federal on it or might say, you know, two, five, four, two Austin knows the address. And we just knew if it said 10 federal, the unlock code was four, five, four, five. So then our call center could take the payment over the phone, ask them what, what label is on the lock, give them the, that over back over the phone. And damn, it worked great. And I ignored my people for like six months. Like Brad, can we just do the label locks? I was like, no, we're going to make these electronic locks work. And you know, maybe not be a, you know, I, I'm, Elise was smart enough to listen to him after about six months and said, you know, maybe there's something to this. Maybe an enterprise system coupled with something as simple as a combination lock would work. And so, you know, that's where we are now. This is one of them. So, you know, see the serial codes marked with the QR code, which launches that enterprise software system. And that thing is used in one of every seven stores in the country now. And it's in every single public storage. And we have 13 patents on it, the last seven of which got reissued refactored so we could go to any industry. We'll be presenting at Venture Atlanta in October to see if we can raise venture money to do what we've done in self-storage and education and freight forwarding and logistics, utilities, and so on and so forth.

SPEAKER_02: 58:44

I got a venture capitalist for you. We'll talk after the call, but I know a couple of PropTech guys that would probably be really interested in this. Well, it's funny because I was just on site yesterday on this note. I had a resident got locked out of his unit and there's like five lockboxes All over the place from various different management companies. And I had to go to one of the lock boxes and I pull a text message from the maintenance tech. And there's like 10 potential combinations that might be. And I had to sit there and I went all the way to number seven till it opened. And I was thinking in my head, I wish I had the DaVinci lock so I could just point my phone at it and open this puppy. But, you know, I think it's awesome. So that's awesome. I mean, I think this whole story is incredibly inspiring and I'm inspired. I'm sure the listeners will be inspired about what one can do. if you're willing to get your hands dirty and get into the weeds. Today, you guys are raising a fund, correct? You're on your next fund. And tell us a little bit about your investment thesis today. And you described your investment thesis as bringing an AK-47 to a knife fight, which I love. And I dive into that for us, please. I mean, that's awesome.

SPEAKER_01: 59:51

Okay, so we have two ways we create value. One is data science. I'll come back to that second and the others the automation and like the automation, it's, it's, um, When you understand what we're doing and how that compares to the competitors, you understand why it's an AK-47 in a knife fight. So imagine a graph with two axes. This axis is customer satisfaction and this one's operational efficiency. And customer satisfaction is just a proxy ultimately for rental rates. Now, on that graph, think about a REIT, like a public storage, a CubeSmart. They're very, very good at customer satisfaction. So they're way up here, but they're not operationally efficient. They have 2.2 employees per store. Now, take that mom and pop that you drive down a country road and you see it out there. It's a little storage zone. It's got a phone number on the fence. It may not even have a website. Half the stores in this country still don't have a website or they have it. It doesn't even have pricing on it. They don't have it be on site. Operationally, they're very efficient, but their customer satisfaction is terrible. You can't even rent online. You got to call somebody. You got a dad in a minivan with kids screaming in the background. What we can do is, and we were at 0.6 employees per store. And I think that number is dropping because we have a voice call center system now that's quickly replacing calls in our agents. But last we measured, we're 0.6 employees. We're very efficient. But that enterprise software lets us get to a very good customer satisfaction. Maybe not as high as the REITs, but it's close. But there's nobody else in this quadrant. The REITs are over here because they're operationally inefficient. The mom and pops are over here because they're bad customer satisfaction. There's nobody else. in this quadrant right now. So we can buy from somebody here and take it here. There are some operators who are neither good customer satisfaction or operational efficient. Those are the best to find. But if I draw an analogy to retail, we're like Dollar General. If you have a REITs Walmart and we're Dollar General, you literally built them next to each other. Everybody go in the Walmart. I get that. They have more selection than the Dollar General. So you find the Dollar Generals out in the little markets and Dollar General kills the old mom and pop general store that's been out there because Dollar General's got that pricing power. We are equally weaponized, but just with customer satisfaction instead. And so that's how we're hitting those returns. And so like, if you just take that operational component, if you go back and take our fund funding, you can in fact check me on this on Precoin, which I think they just got bought by BlackRock, but they track commercial real estate funds amongst other funds. But you can look up 2017 commercial real estate funds Our first little$10 million fund finished about eighth out of all funds started in 2017. And we hardly knew what we're doing at that point. We're just a year into it. Our 2019 fund finished first in the country of about 50 funds. We beat Apollo, Bain, Woodpark. I mean, everybody. So it's proven to be a highly effective model. And then the other thing is just data science. We've gone to great lengths to build out, I think, the largest repository of self-storage facilities. We believe there's 63,000 of them in the country. We track them on 150 metrics going back 15 years. We use machine learning and we're able to come up with a predictive rental rate based upon our last 10 years of operating history. So we know if we buy this store, this model will tell us what rental rate we'll achieve within about$8 is our confidence interval. And so, you know, if we see a store that's getting 60 and it says we can get 120, that's the store I need to go buy. At least out of the 63,000 facilities, which ones I would impact the most. And so, you know, we know what to go by. We know how we're going to perform once we get it. And, and there's so many of them. I need 25 of them for a hundred million dollar fund. And there's 63,000 of them out there. There's, you know, 6,000 in the markets that we want to go buy in that would give us that kind of lift. And that's the crazy thing is that two thirds of all the storage deals out there are still owned by mom and pops. They, mom and pop owns one or two stores. It's probably not even their primary line of business. They probably don't even have a website. It's just, it'll be the good old days. We'll look back in 10 years and say, man, I wish I'd done more storage deals. Absolutely.

SPEAKER_02: 1:04:15

Well, the other thing, the other trend I'm noticing that I think is fascinating is because of the vertical integration and because you guys have the systems built, you can outperform comparably sized competitors who are probably kind of going for an older, old school way of approaching it. But the beauty of it is the big boys are not buying the properties you're buying, right? Because they're probably too small for the mega funds, which is, I think, I call it like the mid-market sized buildings. I think the same in multifamily. Like I don't want to be in the$150 to$250 million space because I'm competing with Goldman, Starwood, you know, Blackstone. you're competing with competitors that are less sophisticated. The thing is, you guys are bringing an AK-47 to a knife fight because you can buy a$10 million facility and eke out much better performance than your competitors, and you're not competing with Apollo or Goldman or Starwood. None of these guys are going to buy that building because they have to deploy. So that leads to the question of, which is always the difficulty when you're a fund manager, and I'm curious how you're thinking about it, is, and I've known some really successful venture capitalist who had funds around the size of yours and they intentionally capped it. They're like, we're never going to go beyond this size because the inevitable push-pull is like, you're successful, you're crushing it, your investors like you, and they probably want to give you more money. So the inevitable push is like, well, let's go bigger. Let's go bigger. Let's get to a$500 million fund. Let's do a billion dollar fund. But then your returns will start to tank because now you have to deploy$100 million per deal instead of$10, right? How do you think about that? Like controlling your own ego and want of a larger and larger fund, which is kind of what everyone reaches in that crucible

SPEAKER_01: 1:05:59

moment. I'm sure you're there or close. So thankfully, we're pretty well positioned that there's a lot of runway left, right? So I've got, you know, we've identified 6,000 stores. If we bought them, we can hit the same types of returns that we've gotten before. And if I only need 25 for a$100 million fund, I can do many$100 million funds before that opportunity dries up. Right. And the way though that, so then becomes a thing of velocity, right? It was one thing to get$10 million out the door as 50 and 100. But if I'm trying to get 200 or$300 million out the door, I need a way to catch more fish. And so what we've done is we've recently taken the data science system and rather than leaderboarding out the worst performing property, we've built resolution logic to figure out who owns the properties and we're looking for commonalities of ownership. And it's hard because they might have main street stores and then they might have country road stores. They're not branded the same because they're not a good operator. They should leverage branding. But they may have 20 stores. And so now this leaderboards out the worst operators in the country. I won't embarrass anybody and say any names out there, but now I can go after a 20 or 40 or an 80 store operator that might be a$100 million transaction. And now without sacrificing in the upside economics. But you're right. At some point, the opportunity is paper. And we're also a little bit fortunate. The unmanned model scales really well. All of our employees are here locally. So we have some out at the province doing light maintenance, but generally we're very centralized. Are there any,

SPEAKER_02: 1:07:43

and I think we're close to the end of our time here, Brad, and I want to be mindful of everyone's time, but are there any risks to the self-storage industry that you're seeing on the horizon? Like, Obviously, one of the big ones was the lack of single home transactions was sort of hurting the self-storage business because that's a big catalyst for people to use self-storage. Is there an oversupply cliff coming? Is there a risk to the thesis?

UNKNOWN: 1:08:10

Yeah.

SPEAKER_01: 1:08:12

I think there always is a risk. You know, I don't, I don't think we should ever, we have, we have a couple ideas how to possibly really disrupt the industry that I'm, I'm going to selfishly keep close to chest here. So I'm going to, but, but, you know, you always have your market risks, your, your, your classic ones of, you know, dot credit, you know, that we've been in a funk, 30% of our renters are home buyers. And so they've been generally offline and we've, we've had a really tough last two, three years. Nevermind the fact that interest rates are high. It's been like a double whammy. So we see a lot of our peers, you know, giving properties back right now. But yeah, I think there's ways that, that the ways people interact with storage and the habits that they use storage could change with technology. So, you know, It's like Bill Gates said, you know, nothing happens for three, four, five years. And then in 10 years, the whole world's different. So like I'd say, you know, in the near term, I don't think much of anything is going to really disrupt self-storage. We tend to be very recession resilient. But, you know, 10 years from now, you know, it might look different. You see little groups like Lutter and stuff who are Airbnb of types of self-storage are making inroads. But, you know, I think there's ways it could be disrupted.

SPEAKER_02: 1:09:31

Yeah. Well, if anything, I think your model will dovetail well with the AI revolution that's happening right now because it was only like you mentioned you know reducing personnel and call centers thanks to AI I mean it's like you're well positioned to take advantage of that trend right now which not everyone can say so that's huge so well I like to end every interview with a critical question which is what is your top book recommendation for anyone listening like if you had to pick one book One book that changed your life and you're like, that's the one. Because, you know, selfishly, I'm just always looking for my next read. So I really want to hear what's your book.

SPEAKER_01: 1:10:11

God, do I have to give you just one? It's all right.

SPEAKER_02: 1:10:14

You can give me more. But what's the, what's, yeah, sure. What are the top three

SPEAKER_01: 1:10:18

most valuable books? I'm going to categorize it out for you. Enjoyable reads that establish good business values. My favorite two books are Poor Richard's Almanac by Ben Franklin. Thing's tiny. It's just a little thing, but just, it's just, It's just like, and if you ever read that, then you, you, I love the guy, Charlie Munger, you know, poor Charlie's almanac. Uh, it's just a hilarious read and it, you can't have better values, uh, in the business world from a long-term perspective, which I endorse from Charlie. You know, if you really want to get deep down into like, understand where, you know, where I come from on the macro picture, you know, like, like death and money, uh, the death of money, the rise and fall of nations. Um, and, uh, Dalio's big debt crisis. Those three, I think, just do a great job of framing the consequences of where we're going with the fiscal spending. But if I had to say one, I think, honestly, probably made the biggest difference in my business and just my life. It's called the new personality self-portrait by John Oldham. What it does is it takes the 14 DSM personality styles. and puts it into a perspective that's easy to understand. And man, it was like, it was like a tremendous unlock to suddenly understand, like I'm a conscientious personality style. You know, my wife is, is, well, let me not talk about my wife. That's probably not a good, good taste. But I, you know, we've got some people that are devoted. We've got others that are vigilant. And so, you know, like, like me, I think people are gonna respond like me. Like I, you know, push a button and for me, blue light comes on. Like I push somebody else's button, red light comes on. Like, you know, I'm, expecting Blue Light. And I'm like, I didn't really understand why. And I just can't tell you how profoundly impactful that book was on my way to interact with the people I work with and also at home in such a positive manner. Thank you. That's awesome.

SPEAKER_02: 1:12:17

I've read some of those books, Poor Charlie's Almanac, Poor Richard's Almanac. I 100% agree with you. Fantastic. I recommend Poor Charlie's Almanac to almost everyone I talk to. I'm like, you got to read it. Poor Richard, also great. But I mean, and obviously Charlie Munger was a huge Ben Franklin fan, hence the naming of the two, but I could not adore a businessman more than I like Charlie Mugger. So that's fantastic. So Brad, thank you for being here. Where can the listeners find more about you? And I know you guys are raising a fund and this is obviously not a solicitation to invest, but if they wanted to explore, you know, working with 10 Federal or participating in your guys' upcoming fund, where do they go?

SPEAKER_01: 1:12:57

Yeah, just reach out to me, brad at 10federal.com, the tens, the numeral one zero But Brad at$10.com just emailed me. We're an open book. You know, we, you know, and this is good for investors to know. I will tell anybody that walks through this front door how we're doing the automation. I'm a huge believer in the American dream. I want to pay it forward. I want$10 to be more than just, you know, an opportunity for, you know, the people inside of here to make money. So I can't tell you how many people we've enabled to also do automated operations, return time to their families and things that sort. But, you know, separate from that, yeah, we're, you know, raising a fund and happy to tell people all about that too.

SPEAKER_02: 1:13:36

Amazing. And I will put it in the show notes. We'll include your email and your website. So the listeners will be able to find it. And with that, I just want to thank you, Brad. This was an amazing interview, even better than the pre-interview, which I said we should record it, but this was better. So fantastic. Thank you for joining us. Thanks for taking your time. I'm sure the listeners are gratified by this amazing conversation. So many great takeaways. Thank you. And I want to leave it off with our classic timeless line, which is think well, act wisely, build something timeless. Thank you everybody for being here. And thank you, Brad, again for joining us.

SPEAKER_01: 1:14:10

Thanks for the opportunity.