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Global Investors Podcast
GI91: Repositioning Self-Storage Complexes & RV Parks with Scott Lewis
March 17, 2021
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Scott Lewis is the co-founder of Spartan Investment Group which operates over 6700 storage units, 200 RV pads, has completed $11M in development projects, and has raised over $42M in private equity.

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Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Scott Lewis. Scott is the co-founder of Spartan Investment Group which operates over 6700 storage units, 200 RV pads, has completed $11M in development projects, and has raised over $42M in private equity. So thank you so much for being on the show. Scott.

Scott:
Thanks Charles. Happy to be here.

Charles:
So can you give us a little bit about your background professionally before getting involved in real estate investing?

Scott:
Yeah, so I kind of started out in high school as a framer building residential houses, so that’s kinda where I started. And then I went off to college and I did a degree in chemistry and marketing that didn’t really take me into real estate, but it did take me into biotech sales. So there for a little while up until my upper twenties and then I, I quit my job and joined the military. So I went to active duty for a couple of years. And then when I came out, I joined the government kind of with the idea to grab a bunch of different skillsets, like strategic planning, risk management and project management. So that eventually I would kind of start a company that turned into Spartan investment group and the just kind of happenstance that it was in real estate. Cause I really enjoy the built environment.

Charles:
Interesting. So is there any other reason, like why you chose real estate as your investment vehicle when you were in this process?

Scott:
No. No, not really. I just had, I had some experience with the building side of the house, so I really enjoy real estate. I didn’t, I did have a condo that was a rental property that kind of showed me that I’m not a huge fan of residential. Our real estate are not my really forte, which is kind of one of the reasons why we pushed to self storage and RV parks. But there was no, there was no love of real estate. I didn’t do it in high school. Or I’m sorry, in college, it was just something that I enjoyed. And it was a good kind of natural fit with my kind of desire to build a business.

Charles:
Interesting. Okay. So what is your firm’s current acquisition criteria? I mean, when you purchase self storage and RV parks.

Scott:
Yeah. So we’re looking to buy a lot this year. So if any listeners have a kind of leads where we like to stay kind of terminal size of 40,000 square feet or more it’s okay. We can expand, we have a construction company. That’s part of Spartan that can go out and build. And we like the secondary and tertiary markets. We try to stay away from the REITs as much as we can, but we’re looking in 31 different States. We have something called Spartan map. So www dot Spartan, map.com. If you’ve got an address and you put it on there and it lands in a blue square, we’re interested. So that’s kinda, that’s what we’re looking for.

Charles:
Yeah. I was going to the map. I, I did pull that up when I was researching for this. So you focus on dozens of markets when acquiring assets. What criteria are you looking for when performing the market selection? Because there’s literally, I mean, almost every state, there is a part of it that you’re you’re in or interested in being in

Scott:
Self storage is, is highly local. It’s, it’s very micro market. So there’s, there’s opportunities everywhere for storage. It’s not, not necessarily based on the ma the macros, but we do look at population growth and job growth, very, very similar to most of the market demographics that other folks are looking for. You want to look at growing markets, not dying markets.

Charles:
Yeah. And so is it difficult to, I was talking to someone they’re telling me that half of self storage complexes are owned by mom and pops. And I, I, I’m not sure if that’s true or not, but it sounds in my research of using self storage when I searched for it, I kind of see that, that, that could be true. It doesn’t make it more difficult to source deals and create broke relationships with such a broad spectrum of markets.

Scott:
I think so you know, storage is a relatively small place and you’re right. Industry, the, the, the statistics kind of vary somewhere between 68 to 73, 74% are still owned by mom and pops. There’s a lot of consolidation going on right now. But just because it’s self storage has started, has been in the spotlight for a few years, but then Blackstone and bill Gates didn’t help matters any by coming into it. And you know, it, there’s only so many brokers for self storage that are truly storage brokers. Of course you get the one-off broker here or there that has their buddies facility down the street that, you know, they were, were drinking beers at the Elks club and, you know, they gave, they gave him the listing, but for the most part, there’s a few very professional self-storage brokers out there and the big listings come through them.

Charles:
Okay. Can you explain the value, add process for self storage and kind of how that differs a little bit from multi-family? I think most people understand the multifamily where going in you’re updating the units, you’re increasing rent over time. How do you increase value for self storage complex?

Scott:
Yeah, I mean, it’s very similar, you know, the operational improvements are, you’re obviously not going in and improving a concrete box. But there, there is facility improvements. You know, similar, if you were to take a class D multifamily that’s, I don’t think there’s too many dirt roads and multifamily, but a lot of the drive Isles and old storage facilities are just gravel or whatever, but there is physical improvements with enhanced security, better roads, patching roofs, new doors in addition to operational improvements with just making things easier for your tenants, which allow you to push around.

Charles:
Yeah. Yeah. I had, I was part, I was renting a mom and pop one and it’s been soon bought out now, but it was so difficult to pay them. And I was like, seriously, like you guys just like, send me something, just do a subscription, my credit card. And it was the most difficult thing I had to go through a third-party. And so I’m like, Oh my God, like, it was, it’s different from when you’re going to one of the major players. And I mean, it couldn’t be any easier for them to take your money. So I definitely see that part of it.

Scott:
It’s interesting. One of our RV parks, we had that that phenomenon when we bought it, it was very difficult for the residents to pay. And one of the things that we didn’t as kind of a second order of fact is we went in and made sure that it was very easy for the tenants to pay. Well, what we inadvertently did was eliminate two to $3,000 a month of late fee revenue. Now it wasn’t legitimate late fee because the are, our residents were being charged because they couldn’t pay, like, not because they didn’t want to pay. So it was not good revenue for us to have anyways, but we didn’t understand that second, that second order of fact, that that’s, that was the reason why all these late fees were being charged. Not because we had delinquent tenants, so that was in the underwriting. So we had to adapt and create that revenue somewhere else, even though it was the right thing to do.

Charles:
Yeah. That’s, that’s interesting. Cause I, I remember going to this place and your access code wouldn’t work and I go, you haven’t paid. I’m like, are you guys charging? And they’re like, Oh, we haven’t done that in a couple months or something. And you’re like, wow, this is like, so it’s amazing how that’s I think it’s the longer people own assets and commercial real estate, whether it’s multi-family or self storage, they get so set in that income coming in and they don’t want to disrupt it and they don’t want to kind of work for it. So.

Scott:
Well they enjoy the mailbox money. And like you said, most, most storage is mom and pop. And you know, an individual investor has a hard time kind of staying up with the times as technology and everything changes. And you know, some of these storage is, have been owned for 20, 30 years. And in the last call, it five to seven years, somewhere in there there’s been massive leaps in storage technology, which is kind of funny to even say that, but it is. And the, the, the, most of the owners just, they, they get checks on the door. And it’s just not, not an efficient way to do it.

Charles:
No, no. So you guys, I was looking at your website and you guys have a 675 point due diligence checklist that you follow when acquiring new assets, which is awesome. Are there any unique points in that that other operators might be overlooking that you guys fall through on?

Scott:
I don’t know, overlooking, I think we go pretty deep in zoning. Zoning is a really big way to win or to lose if you’re going in as an evaluator value, add expansion play, and you don’t understand the zoning and the permitting process, and you stumble into a special use or conditional use permit that has a lot of different steps on it. That’s one of the things that we go really deep on, most of our deals do have an expansion component. And when you underwrite, you know 10 to, you know, hundred percent, 200% a level of expansion, you miss those marks and then suddenly you’ve got a pretty tough deal on your hands. So I would guess that that’s probably one of the areas that we go really deep and based on our developer roots

Charles:
With that type of development, do you, when you’re buying the property, is that contingent on being able to get some swimming, zoning approval for those other units or the other pads for those other units?

Scott:
It is, if it’s anything other than matter of, right. If it’s a special use or conditional use permit, then yes. We generally make the closing contingent on the approval of a site plan. Not necessarily building permits, but at least site plan.

Charles:
Yeah, it’s interesting because I was told years ago from a developer and self storage that I would go to self storage complexes and you’d go to them and they might have you know two buildings built, but they’ll have all these other pads out that they’ve already poured concrete on because they went for zoning on it and they don’t have to go back if they already poured. And I was like, that’s very interesting. And then the youth, so you just see like two already built, you know, buildings, whatever it is. And then they’re like doing some makeshift kind of boat parking kind of thing to make some money on the side before they actually start building as our occupancy. So is that something that you guys kind of follow when you’re going through with it?

Scott:
We do there’s, there’s some some construction efficiencies as well when your dirt guys are out there and they’re taking it to final grade you can’t leave final grade exposed to the element. So if you, if you’re going to pay to have the dirt guys out there, there’s mobilization and demobilization fees that come with each trade, getting out there. So it behooves you to have both your dirt and concrete guys kind of take it to their completion. And then you can bring the steel guys in at any time because the concrete itself isn’t going to go bad. But if you were just to have a, if you were to have to call the dirt guys out there back and forth, one, like once you get your facility up, it can be kind of a pain in the neck to get those big machines back there, to do your grade without massive disruptions to your customers versus the steel guys. It’s pretty easy. Those guys can work around that. So there’s, there’s some operational efficiencies in addition to kind of jurisdictional efficiencies that come with just knocking it out to concrete. And then you can also move pretty fast. If you, if you miss your lease up in a positive direction, then you, and suddenly you’re all leased up in a month and you need more more units online. It’s a lot easier just to go to steel than have to get the dirt guys out there. And like, there’s no weather conditions when you’re putting up steel versus concrete and dirt that are very much water. Depends.

Charles:
Yeah, exactly. Yeah. Definitely. Especially the different additives that they have to add to concrete when different climates. Yep. So what and teams you guys have in place to manage your assets located throughout the U S I’d take it, you guys have onsite in every location and you must have a, how do you oversee that and how do you train those people onsite?

Scott:
Yeah, so we actually have a national brand called free up storage. So we have an entire property management function inside of Spartan investment group. That’s branded under free up storage, and we use kind of some of the standard storage systems. There’s a lot of off the shelf systems that you can use with some minor customization. So we have the digital systems storage is the one that we use for our property management platform and then training. We have other learning management systems inside for customer service operations, and there’s a lot of that training that goes on.

Charles:
So going kind of circling back to when you guys are doing development, when you’re doing self storage, do you have a similar business plan when you’re doing RV parks? I imagine that’s a little bit harder to add more pads onto an RV park or mobile home park with local governments and local local ordinances. Then with adding more units to self storage, do you guys do that as well?

Scott:
So we, we do, we’re actually re we have a ground up development and squint Washington. That’s a brand new mobile home community. And we’ve added RV slots to one of our parks, not the other one, not yet. It’s cause it’s oil-based so it probably not, not a great play right now. It might be though, cause oil seems to be coming back, but it just depends on the jurisdiction. There’s jurisdictions out there that are very anti storage. Not, not it’s, it’s, it’s a business that takes up a lot of land and it doesn’t drive a lot of revenue from sales tax and it doesn’t drive a lot of jobs, like say a best buy would. So there’s a lot of, there’s a lot of jurisdictions out there that are not super thrilled with additional storage. In fact, there’s moratoriums going on in certain jurisdictions around the country. So it really just depends on your jurisdiction where we are looking at a deal in one jurisdiction right now that specifically calls out in your comprehensive plan to build a mobile home parks. So that particular jurisdiction really wants additional affordable housing, which is it’s a shame that there’s this juxtaposition out there that there’s no affordable housing and the jurisdictions are kind of against mobile home community. So

Charles:
When you guys are looking at different markets and I knew like a couple of years ago, I was at a self-storage conference. And they were saying just in parts of Texas, there were like 20 self storage complexes that were in construction. Do you see that if you’re buying an areas with moratoriums, obviously that’s a plus for you because you have a motor on your business, but are you seeing that as an issue with people building new parks or excuse me, new storage facilities taking away from where you guys are or where you potentially might be.

Scott:
So absolutely storage is based on demand and it’s very micro. So something that’s two miles away in a primary market like Denver, Seattle is that two miles could be an attorney based on density versus two miles somewhere in rural Texas, that there’s three people and 400,000 cows in that same two miles. Right. So it just really kind of depends on where you’re at the storage kind of had a moratorium on building, not a moratorium, but just kind of a, a law on billing for a lot of years in the late nineties, early two thousands. It’s definitely had a resurgence over the last, probably since 2012. So we’re almost going on 10 years of building now. So there is definitely markets that are becoming very saturated, but even within those saturated markets, you can pull out intersections that could still support additional storage. It’s definitely a concern. You have to be careful with that and really understand demand. Is there a mode around it? It just depends on the jurisdiction. So it’s not, it’s some places there’s high barrier to entry, but that could be said for multi-family or retail or anything else.

Charles:
Yeah. That’s very interesting. Yeah. If you’re in that right neighborhood, cause I think it’s, it’s something that you get it close to residential areas and people love it. And there, it’s going to be different if someone has to drive 15 minutes away and how often they’re going to be using it or what they’ll pay. So that’s very interesting. Yeah, same it’s I mean, I guess with multifamily, it’s very market specific. Very, it comes down to the neighborhood really and how one building three blocks away will rent much differently and have different traffic for people wanting to rent than something three blocks in the other direction. So it’s very interesting.

Scott:
Yeah. We kind of, we started in residential and it was in DC and Pennsylvania Avenue. It was kind of a landmark in the district and South of Penn kind of on in Southeast DC. There’s probably between that and North of Penn and Northeast DC. And, or I’m sorry, in Southeast DC, that’s literally one block, but it’s probably the difference of if you’re selling condos 50, 60, $80,000 per condo, and you could throw out what you literally could throw a rock at the two different condos and it would just be very, very different.

Charles:
Interesting. What kind of financing are you guys getting for? I mean, I know there’s a couple of lenders that are out there that kind of focus on self storage. Are you, what kind of debt do you usually find? Is it with local banks and credit unions or are you guys using national lenders or is it different depending on the project and if it’s stabilized or not,

Scott:
It’s definitely different depending on the project, we have everything from lives, insurance money down to a local bank. So it’s really kind of project dependent. Some of the projects have a little bit more fur on them so that the big life insurance money or debt funds are not super interested in that. Versus when something, it doesn’t have as much fur on it, if it’s a lease up or kind of a stable play, those guys are interested in it because it’s basically a self-licking ice cream cone at that point. So it just really, you know, we pull out the right tool for, for whatever the job is you need to do.

Charles:
Yeah. That’s awesome. So what mistakes do you commonly see other real estate investors make within self storage and RV parks as you’re, maybe throughout your travels and throughout your business?

Scott:
Yeah, I think it’s pretty uniform across the board, right? There’s a, there’s a saying out there that I despise and it’s ready, fire aim. And that’s, I, I understand what the folks who are using that saying are getting too, but I don’t think any of them were actually like have ever actually used a weapon where they needed to conserve ammo. I have. So it’s one of those that I get, why you don’t want to aim, aim, aim, aim, aim, and never fire. But at the same time, you should probably learn how to use that weapon and aim so that you can do that quickly. Versus like hoping for the best hope is not a strategy. And I think that’s happening a lot right now that in all asset classes and there’s definitely dumb money chasing every single deal out there we’re in kind of unprecedented economic times right now. And I think that’s probably what we’re seeing is we’re, we’re getting beat out by offers that that are just bananas and maybe they’ll win by cap rate compression and this economy will keep roaring and keep going. And if it doesn’t then this to be fantastic deals for us.

Charles:
Oh yeah, I totally agree with you. There’s going to be some sort of contraction or something that pull back that will happen in the future that I think a lot of new investors, especially the ones within syndication of all different commercial asset classes are going to be surprised when it happens. So what do you think are the main factors that have contributed to your success?

Scott:
I think kind of, you know, our values are grit, growth, respect, integrity, tenacity, and transparency. I think really being a value values-based organization with really good planning metrics and adaptability, it really kind of set the conditions that we’ve been able to, to grow pretty well. I mean that sign behind me, the 500, we were number three Oh eight out of 5,000 fastest growing private company, private companies this year. And I think that’s really what we built out our strategic plan or just available on our website, if anybody’s interested in kind of seeing where we’re going and we’ve stuck with that plan and we’ve built in a certain amount of adaptability within that strategic plan so that we can adapt to our operating environment, whatever it is. And I think just really never quitting. So tenacity when you’re in real estate, tenacity is something that you absolutely have to have. It’s not fast. There’s no get rich quick. There’s no figure out the tech code and then sell a billion units. That’s not how we operate. Right. It takes a long time and there’s a lot of nuance and you just got to just grit and get through it.

Charles:
Hmm. And how can our listeners learn more about you and your business, Scott?

Scott:
Yeah, so we are at www.spartan-investors.com and anybody who wants to invest with us. There’s an invest now button on there. We are doing a big round of hiring right now. So if anybody’s interested in working for Spartan and you think you have what it takes to be a Spartan, then jump over to our careers page. And anybody’s got questions for me up [email protected]

Charles:
Yeah. And I have to say, you guys have a lot of helpful and informative videos on your website. So definitely if you’re interested in self stored or RV parks, head over to their website and I will put that link into the show notes. So thank you so much for being on today, Scott.

Scott:
Thanks Charles.

Charles:
Have a great day. Bye bye.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar incorporated exclusively.

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About Scott Lewis

Scott Lewis is the co-founder and Chief Executive Officer of Spartan Investment Group, LLC (SIG). To date SIG operates over 5500 storage units, 200 RV pads, has completed $11M in development projects, has $115M more underway, and raised over $42M in private equity.

As the CEO, Scott is responsible for the strategic direction of the company and ensuring it aligns with SIG’s mission to Improve Lives Through Real Estate. In addition to Spartan, Scott is also in the US Army Reserves and a combat Vet. Scott graduated from Michigan State University with degrees in Chemistry and Marketing, from Catholic University with a MS in Management, and from Georgetown University with a Certificate in Project Management.

In his free time, Scott enjoys spending time with his wife, Lindsay, mountain biking, skiing, and chasing their Jack Russell Terriers around the yard.

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