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Robert Brunswick:
Welcome to our Counting Capital podcast. I’m very excited today to introduce to you one of the rising stars at Buchanan Street Partners, a young man that has distinguished himself at a very early age, and we noted that and recruited him to help run our self-storage business. Feerooz Yacoobi has an interesting background and he’s going to share that with us a bit today. And my goal is to help you learn more about self-storage and why we are an active investor in that space. So Feerooz, welcome. It’s great to have you here today.
Feerooz Yacoobi:
Yeah, thanks.
Robert Brunswick:
We’re going to have some fun together.
Feerooz Yacoobi:
Absolutely.
Robert Brunswick:
I want our audience to kind of get to know you a little bit, so if you could tell everybody a little bit about your career. How did you get into self-storage? And then we’ll kind of talk a little bit more about what you’re doing at Buchanan.
Feerooz Yacoobi:
Yeah. No, I can’t say I’ve always dreamed of a career in the self-storage space as a kid.
Robert Brunswick:
Sure.
Feerooz Yacoobi:
But really coming out of college, I had a concentration in real estate finance, so I always knew I wanted to do something in the broader real estate industry, and networking, talking with a lot of successful businessmen, you kind of learn that they found a niche that they’ve really honed in on and found a way to create a lot of value. So I liked … That really caught on. I liked the idea of being a “bigger fish in a smaller pond” and coming out, I had really two opportunities. One with a firm in Chicago and they were really focused on the mobile home park and airport parking structure business, and then another opportunity with the self-storage group here in southern California.
And ultimately, the southern California group was one of the larger players in the space, and they just partnered with some large institutional capital. So they’re really gearing up to do that high-growth initiative. And while I was there over the course of four to five years, I mean, that portfolio grew 50%. So getting in on the ground floor as a rookie, learning the ropes mainly on ground-up development too, which is a totally different risk profile…
Robert Brunswick:
Sure.
Feerooz Yacoobi:
…than your typical acquisitions. And so getting in there and slowly but surely figuring the industry, the business out, and really not asking for permission, but just digging up my own opportunities led into one thing, into the next, and here we are today.
Robert Brunswick:
Well, that’s a great start and not all that different than what you hear, a lot of people that have had success in the real estate business. They got in early, they got dirty by learning the business.
Feerooz Yacoobi:
Right.
Robert Brunswick:
And with that, have distinguished themselves. So with that being said, storage. So we think about self-storage, and so I’m a different generation than you, and so when I think about storage from way back when and what it is today, it’s really quite amazing how that the asset class has evolved.
Feerooz Yacoobi:
Right.
Robert Brunswick:
And we think of kind of the four major food groups, office, industrial, retail, and multi-family, historically.
Feerooz Yacoobi:
Right.
Robert Brunswick:
Today there’s another 10 or 12 types of real estate that investors can invest in, but storage seems to be getting more than its fair share of capital allocation. So describe storage to us to the person that might not have the background that you do. What is storage in your mind as you think about it today?
Feerooz Yacoobi:
Yeah, no. And looking back, storage as an asset type is still relatively young. It’s only 50 years older or so compared to the other four main asset classes you’ve just mentioned, and so people have continued to learn how to use the product type and so that’s really driven the evolution of the industry. We’ve gone from the single-story metal building drive-ups that are surrounded by perimeter barbed wire that mainly contractors used to store their equipment for the businesses.
Robert Brunswick:
Sure.
Feerooz Yacoobi:
And now you look at these new multi-story institutional quality facilities in these urban core markets that look like hotel and offices. And so as consumers learn to use a product type, you’ve definitely seen the penetration across the population continue to grow. And that’s driven a lot of capital and talent into the space driving and innovating the product into what it is today.
Robert Brunswick:
So if you were to provide us, I want to think about demographics. I want to think about demand drivers.
Feerooz Yacoobi:
Correct.
Robert Brunswick:
What are the ingredients that have made storage such a widely used, widely used asset class today?
Feerooz Yacoobi:
Right.
Robert Brunswick:
What’s driving that?
Feerooz Yacoobi:
Yeah, and so there’s varying demand drivers, and you have everyone from college students using the space as they go home for the summer, they throw their stuff in storage. You have businesses now utilizing the space, the rise of e-commerce. A lot of mom and pop businesses online are utilizing the space. And then another demand driver is the rise in housing costs. I mean, it’s a lot cheaper to have a storage unit rather than an additional bedroom in your home or a larger apartment. And so all these things come together. And that’s really driving kind of this need for storage space across the country, and it’s been quite remarkable. I mean, you have facilities now that are 97%, 98% occupied, and where 20 years ago the average occupancy was 85%,` and so you can definitely tell there’s a need and growing demand for the product.
Robert Brunswick:
So you think about a storage unit, all your leases are month to month.
Feerooz Yacoobi:
Mm-hmm.
Robert Brunswick:
So what is the average tenancy time for a tenant that goes into one of your complexes?
Feerooz Yacoobi:
Yeah, that’s the beauty about the industry too. The tenants are relatively sticky, even though they’re on month-to-month leases. It’s 12 to 13 months on average on a stable property. That’s continuing to grow as well, and so once you get people into the facility, it’s a pain point to have to move your stuff out. So people really don’t want to move unless there’s a need.
Robert Brunswick:
So almost a proxy to multi-family in terms of average lease terms.
Feerooz Yacoobi:
Yeah.
Robert Brunswick:
Right? So it has that predictability. And what about rent appreciation? So you put that tenant in there at probably a starter rent?
Feerooz Yacoobi:
Correct. Yep. So you have promotions: one month free, two months, 50% off. You get the tenant in there, and then the first six months they’ll get their first rent increase. So again, month-to-month leases. You give them their first rent increase, you see 8% to 9% attrition. And then from there every 12 months thereafter a tenant stays, they’ll get another rent increase.
Robert Brunswick:
So it’s probably a good hedge with inflation?
Feerooz Yacoobi:
Correct.
Robert Brunswick:
Because they’re not long-term leases and you can continue to adjust that rent roll.
Feerooz Yacoobi:
Correct. Yeah.
Robert Brunswick:
So if you think about PropTech and you think about the paradigm shifts of technology and technology’s influence on real estate, and a lot of real estate operators are slow to kind of accept that next transition. But what does a brand new self-storage property look like today?
Feerooz Yacoobi:
Yeah, so brand new urban infill product today, three story, fully climate controlled, so talking PropTech, HVAC mechanical systems all programmed. You have security access controls into the facility. One of the newer pieces of PropTech, which we have in our Chino Hills property we recently acquired, is the Bluetooth access controls that people have an app on their mobile phone, gain access into the facility, can gain access into their unit, and then share their key with friends and family for an hour or a day and then recall their key. So all wireless, mobile. So it’s really differentiating the newer product today versus again, the single story drive-up facility that is more common.
Robert Brunswick:
So if you look at a standard self-storage property, what’s the square footage?
Feerooz Yacoobi:
So the average facility, again, we’re talking new multi-story product is 100,000 gross feet and there’s about a 70% efficiency. So hallways and elevators are lost rentable space, so you’re talking 70,000 square feet, approximately 700 to 800 units.
Robert Brunswick:
So an average unit then, is there such a thing as a standard size unit or is there a big range?
Feerooz Yacoobi:
Yeah. No, so the most typical is a 10 by 10, 10 feet wide, 10 feet in length, and so that’s the industry kind of standard unit. When you refer to pricing, people look at a 10 by 10 rate, but we vary from five by five units all the way up to 10 by 30, 15 by 30 units.
Robert Brunswick:
Got it. And again, depends on the location and the age, I’m sure. But what’s an average 10 by 10 cost in our portfolio today?
Feerooz Yacoobi:
Today? So southern California, we probably see $220 on average, $220 bucks a month.
Robert Brunswick:
Got it.
Feerooz Yacoobi:
Yeah.
Robert Brunswick:
Okay, so whereas 10 years ago, that would rent for in southern California?
Feerooz Yacoobi:
Ten years ago, $150 bucks a month.
Robert Brunswick:
Got it. Okay, so it’s had some nice steady rent growth.
Feerooz Yacoobi:
Absolutely.
Robert Brunswick:
So if you were to describe to our audience what Buchanan is buying today and where you see opportunity, and the different ways that we can put money to work in self storage, how would you frame that for us?
Feerooz Yacoobi:
Yeah, so self-storage is very trade-area specific. It’s a local business, so it’s always important to keep that in mind. But in general, we focus on top MSAs that have a dense and/or growing population base. So that’s really where you see above average demand and long-term capital appreciation, where there’s some barriers to entry for new entrants. And so you have the supply/demand and balance strong fundamentals to grow upon and allows for some predictability of cash flow and asset appreciation over time.
Robert Brunswick:
So maybe before I get you to the types of things you’re investing in, because you’re defining, it’s important to have the demographics, is there a per person count within a demographic square foot to person? Or how do you kind of model that in your mind?
Feerooz Yacoobi:
Yeah, so we measure supply on square feet per capita.
Robert Brunswick:
Okay.
Feerooz Yacoobi:
So square feet of storage space.
Robert Brunswick:
Storage. Right.
Feerooz Yacoobi:
Within a trade area based on the population. And then you look at that in addition to new supply coming down the development pipeline, and then also population growth. And then it’s very, again, trade-area specific. So in markets like Texas, your average square feet per capita is going to be a 10 in Dallas, whereas …
Robert Brunswick:
Is going to be a …?
Feerooz Yacoobi:
Ten square feet per capita.
Robert Brunswick:
There you go.
Feerooz Yacoobi:
Versus in southern California, LA, it’s probably going to be closer to four or five. But Dallas still has an average occupancy rate of 95% in today’s market because that user base is storing different things. They’re storing their toys, their ATVs, dirt bikes, and the homes are larger, so they have more furniture to go into these larger types of units.
Robert Brunswick:
So are we buying only brand new completely leased properties? Are we buying properties that have leases up? Or we do a ground up? Or we buy something with cash flow? Tell us a little bit about what you’re buying.
Feerooz Yacoobi:
Yeah, so there are varying opportunities in today’s environment, and given where we are in the cycle, there’s a lot of new development coming off the pipeline, or has been delivered in the last few years. And so self-storage supply takes two to three years to lease up, so it’s definitely a time-intensive lease-up process, I would say. So we think there’s an interesting risk adjusted return profile for us to go in and buy these newer quality assets where we can get a 50% to 75% BIP yield.
Robert Brunswick:
So BIP, basis points.
Feerooz Yacoobi:
Basis points, yep. Yield added to an investment for taking on that lease-up risk, where if we do our homework correctly and we are in these higher varied entry markets that are dense and growing, seeing improved demand, we feel that’s a pretty attractive return for our investors today.
Robert Brunswick:
Gotcha. But just to be clear, you’ll look at a ground-up with a different yield requirement.
Feerooz Yacoobi:
Correct.
Robert Brunswick:
The existing stuff that’s leased, you’ll consider, but that would probably be for more of our core fund or something where people are investing in cash flow.
Feerooz Yacoobi:
Correct.
Robert Brunswick:
And then the primary focus is what I’m going to call value return that you’re looking for where you’re taking lease-up risk, but you’re not taking construction risk.
Feerooz Yacoobi:
Yeah, correct.
Robert Brunswick:
Entitlement work.
Feerooz Yacoobi:
Exactly. So yeah, you’re not taking the construction risk and then you’re taking on some of that lease up risk, but you’re getting that appreciation, so it’s more of a value-add vehicle.
Robert Brunswick:
Are you managing these assets yourself?
Feerooz Yacoobi:
No, so we hire professional third-party property managers. We have great relationships with and have selected a few regional groups that have great presence in the markets we’re in, and so we use a third party that handle it. They’re experts, and so they have great reach in those markets. They work closely with our team. We have direct access to the principals of those firms, and we see that as a pretty competitive advantage for us.
Robert Brunswick:
So I assume you’re managing them?
Feerooz Yacoobi:
Correct.
Robert Brunswick:
Through the asset management role?
Feerooz Yacoobi:
Yeah, so my job not only is to identify investment opportunities, but then also oversee our assets and our portfolio as we grow and build out a sizable presence in the space.
Robert Brunswick:
So what we recognized in you, and I think you recognized in coming to work at Buchanan was the opportunity to have kind of a soup to nuts responsibility. So your prior job where you were quite successful, you were predominantly in acquisitions?
Feerooz Yacoobi:
Acquisitions and development.
Robert Brunswick:
Acquisitions and development.
Feerooz Yacoobi:
Correct.
Robert Brunswick:
So how does your job differ today as you think about your career evolution and what it means to you?
Feerooz Yacoobi:
Yeah, so in my previous role it was really soup to nuts from identifying opportunity, taking it through the development process, getting a facility built, and then handing over the keys to our operations team and working with them…
Robert Brunswick:
Sure.
Feerooz Yacoobi:
…to oversee the business plan. And now we’re really doing the same thing, but after we purchase an asset, we’re overseeing that through the entire life cycle of our investment. So it’s more long term, I would say.
Robert Brunswick:
Sure. So as far as we think to move to the last few questions, I want to get a sense, I kind of describe you to people as a bit of an old soul. While you’re young by calendar date, maybe you seem to have a lot of wise-ness to you and natural intuitive sense. So what did you learn maybe from home, from college, from your early jobs that kind of enables you to have this responsibility that you have today in working with our team here?
Feerooz Yacoobi:
Yeah. No, I think it’s important. What I learned, it’s important to think long term. I think a lot of people think short term when making, whether it’s investment decisions, career decisions. If you can make a long term decision and “keep the angle in mind,” I think that’s really enabled me to have a lot of success. So not making what would be a good decision, maybe in today’s exact moment, but what may be a good decision for the long term and over our entire careers essentially. And so trying to align everyone’s incentives, trying to make decisions again for the long term, building a long term view of the world.
Robert Brunswick:
Yeah, so having some vision. So this is a nice leapfrog for me to ask the question. So you’re now talking, let’s just say, to a senior graduating class at a college here, you’re trying to give them some advice about getting into their career, and more specifically maybe getting into real estate.
Feerooz Yacoobi:
Right.
Robert Brunswick:
So are there some touch points that you might suggest folks consider as they start their career?
Feerooz Yacoobi:
Yeah, I think a big thing for me was not being stuck behind a computer in your typical analyst role at a huge institutional bank or investment shop. Is go with the firm where you can get your hands dirty, learn everything from the beginning, ask questions, work closely with the principals of a firm, and really understand the business. It’s not just what the pro forma spits out, it’s what makes this a good piece of real estate. I mean, real estate is a people business, so it’s not just cranking out numbers because you can make an IRR look good. So it’s what exactly drives these returns? What is the business plan? How can we improve that business plan and ultimately drive the value of the property?
Robert Brunswick:
Sure. That makes great sense. So are you investing in these investments at Buchanan?
Feerooz Yacoobi:
I am, yeah.
Robert Brunswick:
But what do you think about … Is that important as you think about alignment of interest?
Feerooz Yacoobi:
Absolutely, yeah. So I mean, I take pride every time I can get an opportunity to invest in an asset that I’ve worked on, I do. And so I’m not only a believer in the property, and so I like to say my money is where my mouth speaks.
Robert Brunswick:
Yes. Right.
Feerooz Yacoobi:
Absolutely.
Robert Brunswick:
Well, that’s great. Well, I think my last question for you is as you think about the favorite aspect of your job, the one that kind of really gets you fired up, you have a lot of responsibilities, but what might you characterize as your favorite aspect of your job here?
Feerooz Yacoobi:
Yeah, so I think I really enjoyed the hunt, especially in today’s competitive investment landscape, that might be the former athlete in me.
Robert Brunswick:
Right.
Feerooz Yacoobi:
But I enjoy uncovering value and beating someone else to the punch, and so I think analyzing real estate differently and identifying opportunities before other people see them is a really fun part of what I do.
Robert Brunswick:
Sure. Well, Feerooz happens to have an office right next to me, so I hear that consistency of effort and that passion in your voice and just your time at the wheel, as they say, so it’s not lost on me nor any of your fellow employees.
So I hope you all have enjoyed our session today. Feerooz is a rising star, I’m sure as you all can tell, but with for good reason. As we think about Counting Capital, we are glad that we have Feerooz as an asset here at Buchanan Street and leading our storage business. And I hope you’ve had some good learning today as we like to bring you on our podcast. And with that, I will enjoy seeing you next month. Thank you very much.