John Manes on Building and Selling a Self-Storage Business

0:02 We have John with us here today. Uh he's been coming to our events for a number of years and um he's the chairman of the board for store suite LLC, a vertically integrated self- storage platform that's assetbacked with self-s storage properties. Uh he's helped create three companies worth an estimated $300 million and exited two of them for $115 million and $92 million respectively. John's also a published author of a book appropriately named The Workingass Guide to Building Wealth with Self Storage. I brought you a gift. Awesome. The book. The book. Great. Thank you very much. Uh, what would you add about your background before I get started? Um, used to be a Chip and Dale dancer. Not really.

0:50 What? Hopefully this should be fun for the last part of the day. Your guy's rich as fing awkward already. He good. Um, no. I I spent 17 years in retail like the Walmarts and Kmarts of the world. Uh, learned business with them. Been a student of business my whole life. Just fascinated by it. And, uh, so transitioned into storage, which is technically retail. We sell empty space. So, um, pretty easy transition. It's sales. So from there started my career in with one of the REITs. Uh I was a regional vice president for what was Uncle Bob's turned into life storage turned extra space. So uh I was a regional vice president for them and then I went to Houston with a regional operator and was their COO. So I say I learned to run them at Uncle Bob's. I learned to buy them and fix them up at the Jenkins organization and got fired from both of those jobs.

1:57 Can't keep a job. And best thing ever happened, I went out on my own nine years ago and I've I've done about $170 million worth of storage since. Awesome. Congrats. So, a lot of people get into real estate, um, invest their own money, some start syndicating, gathering up capital from others. very few people get to 30 million, 50 million, uh, 100 million in assets. And I want to see how that's connected to the fact that I remember seven or eight years ago, you got you coming to one of our events and you wore a similarly unique jacket that stood out. Everyone else had their conservative blue and black jackets on. Um, and so I wanted to connect those two things. I mean, I don't remember what I wore seven years ago, but I remember what you wore. And so, you know, have you just been wildly different with your approach to everything in the story line? So, uh, yes and no. So, um, obviously I have a different type of personality than a lot of people and I embrace that. Um, I think people learn better when they're laughing. So, I use humor and um, you know, we're a vertically integrated self- storage company, right? So, we do marketing for the storage industry.

3:11 So, why not do it for us? So, years ago, Christine Alvino, who's our CEO, bought me a Steelers jacket like this, cuz I'm a Steelers fan. And based on Shinasty, they have the cookies that come up on your things. And it said you can get them in custom jackets. So, she said, "What do you think?" So, we sent them the logo for our old brand, Pinnacle Storage Properties. They sent us back like eight different designs and I said, "That's the ugliest one. I want that one." I done good. And it started best 250 bucks I ever spent. Fantastic. Then we rebranded a year and a half ago into Store Suite. We combined all the companies that we own together, rebranded under store suite. And I gotta give my mom a plug. My mom made this jacket.

4:06 So she's professional seamstress, retired. So I went and bought the fabric, shipped it to her house in Pittsburgh. She made the jacket. I bought the lining. If you look, our logo is an Al. I've got Al buttons all over it. So And how do you stand out in a crowd of navy and gray suits? I raised $52 million in this jacket. I think the 250 paid for itself. What do you think? I mean, do you do you fear or think that there is a percentage of investors that are like, "Oh, he's not wearing the formal robotic attire of, you know, finance professionals." Uh, have you gotten that feedback or had people guess that that happens? So, I always say money doesn't change you. Money makes you where you are. So, if you're an you're just a bigger right? It does. So, I like to think I wake up every day to be a good person. So you can't judge me like I judge me.

5:02 So I don't care. And that's what you get. But you get honesty and transparency. Everything that they were just saying on stage, right? You get what you get. So I just don't like wearing suits. I like wearing boots and jeans. So So I found something that works for us and works for me and my personality. Great. Well, what about when you you first got started, got momentum? Again, a lot of people own one or two or three storage units. uh what made the difference of you scaling up and not getting stuck in the minor leagues? um left we all uh accidental like there's there's a couple people in the room that have been part of my journey and everything and so when I went out on my own and I bought my first property in Bernie Texas prior to going out on my own I kept a list in the back of my book of people that said if you ever buy a property I'll invest with you which blew my mind at the time so I made the list and I wrote and I started saying well how much are you thinking and they'd know, 50, 100, 200, whatever. And I was like, "Holy crap, somebody's going to give me $200,000." So, I wrote it down on my book. So, when I went out on my own, I had 11 people in my book. I thought I could raise four or $500,000. The first deal was a $1.5 million raise with a partner of

6:20 mine. Um, they're coming to get me. I got to go. Um, so, um, I raised 900 of it. He raised 600 of it. And of the 600 that he raised, he put 200 of it in. I left my fee in, which was $33,000. And I put 67,000 of my own money and kicked myself the whole time cuz I only had 160 grand in the bank at the time. That was not a bad decision cuz fast forward 5 years later, I made $1.8 million when I sold that property. like a $100,000 investment. Not bad. So from there, I just started building momentum and people heard this and heard that and you build credibility.

7:11 Um I I built a lot of cred. This is my 20th year in storage, by the way. So I built a lot of credibility of going out and teaching people how to do this by being on stage. So I would teach them revenue management. I'd teach them how to hire store manager. like whatever operational thing, never knowing that I'd be able to raise any type of money. So, after I got the first deal, raised 900,000, me and Robbie Dunn became partners, started finding deals and raising money and it just started building and uh like kind of by accident. Awesome. Uh was there a light bulb moment when it came to raising capital or scaling operations when you'd realized you'd really figured out at another level? like when it starts happening by accident, you kind of go with it and you're moving along at a certain speed. Was there a certain point where it just really took off from there?

8:02 Yeah, I started Well, I always say this and I was I was teaching Jose this last night at the bar, wherever he is. Um, get in the right room, right? So, this is the right room. I don't care how you look at it. And what they were saying a little bit ago is finding resources once you're in that room. Then the third thing I teach is give to those resources for free with no expectation of anything in return and at some point it's kind of cool that you can have an ask at that point, right? So I say then go back and have the ask and that's what started to happen is I said yes to everything. you reached out to me and I think I spoke in Phoenix with Brett Tree that time in the panel and uh you said do you want to I literally flew in and flew out and stayed at the hotel near the airport because I had so much on my schedule and I said yes to all kinds of stuff. I think that's truly what built the momentum is being in the right rooms. I was in a lot of long rooms too but you got to say yes to get to find out what the right room is. So, because of that, it was easy to then start to figure out what the right rooms were. So, I would ask some pre-qualifying questions. Cool.

9:17 Um, I had a chance to interview uh Tony Robbins. It's on billionaires.com. And one of his top three pieces of advice was just the power of proximity, being in the right rooms with the right people. And then several billionaires have said that more important than anything, what they can say about what what you can do is who you know matters more than what you do. So being around the right people, being in the right rooms matters more than getting a checklist of actions you should take at any one point in time. And I guess that's partially what you're saying here is like getting the right the right network. Um what about for people here in the room that are feeling defeated from high interest rates, high competition, they feel like their real estate niche is now saturated. Uh maybe they have low team morale, they're raising less capital in this environment. Um you know, less cash flow in some of their deals. You know, some some managers feel a bit beat up right now in the market. Uh what would you say to them um given all your 20 years experience? Come see me. I'll give you a hug. I don't know. No. Um we're going through the same thing, right? So I saw uh Tyson speak at the California self storage conference last week. He's from Yardi and he did, you know, they have 25 million units or something in their platform and he did a presentation.

10:27 Everybody's going through it. Um like I was going to joke around say come hang out with me for a minute and I'll put a smile on your face but outside of that like um I think somebody on the last panel said be transparent like for your investors and stuff like don't run and hide. One of the things I pride myself on regardless of easy conversations or hard conversations doesn't matter I always answer my phone always. So, um, the best thing you can do is answer your phone and go through those awkward moments and go through those conversations, whether it's with your team member, like just don't give up. Be as pigheaded as we've been and as stubborn as we've been, and particularly in re in real estate, we go through cycles, right? So, time heals that wound.

11:17 Money helps, but time heals that wound, too. So, um it's always better on the other side once you get there. Awesome. Uh so, why did you sell uh the platform of storage assets um or the other sale? You know, when should people sell and start over at the clean slate? You know, how did you kind of come come to peace with the decision to sell? Oh, yeah. That's a funny story. Why you laughing? So, we had a board meeting. We went to Cancun. We used one of my time shares because we didn't have any money, right? So, I used one of my time shares. We meet in gank king, all of us on the board, and I was dead set. That's why she's laughing. I was dead set against selling like got in a full-blown argument with all my partners. And uh I started shopping to do a recapitalization at the time. And at the time cap rates are in the fours, right, for storage. And um the best offers I got were six caps on my portfolio. And I kept saying to the big money that was trying to recapitalize us, why would I give you, me personally, $3 million of my own personal money to you for the last 8, seven, eight years that I've worked my ass off for. Well, we needed some type of balance sheet liquidity and so on.

12:37 um got an argument with them, came back home to Houston, started talking through it, and I realized that if I cashed out and only put that money to work at a 5% return on investment, I would cash flow the same as I was cash flowing by not having that liquidity. So, and they they made me realize that on paper. So, I needed more data. The reason I didn't want to sell is because I didn't want to lay people off. We're a people first company and we pride ourselves on taking care of our team and we look for that in return. So, it's not just a one-way street. But I didn't want to lay people off and I had a moral obligation to not only them as employees, but their families, their kids, everything like that. Like I was putting food on their table. So, I didn't want to sell. So, in the end when we sold, we still didn't lay anybody off. Nice. We used our liquidity to keep the company going, we went from 27 properties all the way down to six cuz we sold oneoffs even after that. And we've rebuilt back to 21 now.

13:48 And through the merger, we now have 70 or 80 employees, something like that. So, we've actually even grown even bigger. Awesome. Congrats. Um, what about any mistakes along the way that wasted months or years of your life or millions of dollars that just others could avoid by hearing you talk about it? And it might not be real estate related, could just be managing the team. That's called Tuesday. Uh, there's uh, man, I could list a whole bunch of mistakes we've made. Um, found a broker on our third property, paid him a $46,000 underwriting fee. you gave us a term sheet for 6.5% interest at the time when interest rates were in that thing. Came back 3 weeks before closing and told me no, it's 9%. And it wasn't worth the paper it was written on. Uh it was a $46,000 mistake.

14:42 So when you have no money, like I at that time I only had about 70 grand in the bank. So that really really hurts when that happens. So, um I mean that's one mistake. I learned to do better due diligence on people like that and use different types of money and so on. Um you know, our biggest pain point of mistakes have been banks, so to speak. Um you know, get get to the last minute and uh the salesperson tells you one thing and what's in the contract something different. So, I learned to Why are you shaking your head? You've had that pain. Um, I've learned to ask for the contract up front before I say yes that we're going to start dating or I'm going to hold your hand and get married. So, some of those mistakes throughout time has made our behaviors different. What about when you're conducting due diligence on people or assets? Uh, what are some insights you could provide to investors here in the room?

15:49 um storage due diligence is pretty easy. I mean, you do a lock check, you do a maintenance check, you do a capital improvement check. So, um, some of the things that we've learned is the vendors that we continually use to have them show up the day of due diligence with you so that you can give them guidance instead of showing up one a week before because typically the sellers get a little bit mad at that kind of stuff because it's not pres-scheduled or showing up a week or two afterwards because they they don't look for what you would look for while you're there. So from a due diligence standpoint, we now take we've taken upward of 10 team members to a due diligence and bust it out in like three hours and we bring six vendors, roofing, HVAC, door.

16:41 Um we use we typically repaint them and stuff. So all of that we have all those vendors show up that day diligence. Sure. So a lot of people here have closed real estate transactions and you learn lessons over time, how to deal with real estate brokers, how to negotiate things like that. Most people here haven't had hundred million dollar exits and you've effectively had a couple of them now. Um, so whether somebody's having a five or 10 or or much larger exit, what are some a couple bullet points of lessons you've learned the hard way for people in here? Because it's not something you go through 20 times in your life or 50 times. So what could you share with the room on on navigating exits? So one of the things we did by accident that worked out for us is along the way we had a financial analyst by the name of Ross Mullen and we created Fauc means it means stubborn and determined and tenacious right so and that's Ross um one of the things we did by accident is on the transaction of sale we had Ross representing us on our side as a middle company in between us and the REIT. So he he got really good at telling our story. He got really good at understanding what we needed and what we

17:58 wanted and everything like that. He created this document Excel worksheet that we call the SOC. Now I do not know what those three letters stand for, but it's called the SOC. and we were able to move things around to see whether their offers were good or not good and things like that. So, what I learned by accident on a exit of that size is have a specialty person that's on your side in the middle of it. There was interest in him cuz he got a fee for it, but he represented us in that transaction and that that was done solely by accident. So, we didn't use a broker to sell. I know all the major players. So, I took it to seven of the major players directly. I didn't use a commercial real estate broker. So, I didn't have to pay million dollars worth of fees or anything. So, I paid Ross a fee and he made a chunk of money. Awesome. Um, if you think about what makes you different than than others out there, um, obviously you mentioned the the cowboy boots, being authentic, being team first, um, having the grit and discipline, um, you know, being being genuine, having a sense of humor. What have you not mentioned related to how you think that you think makes you able

19:16 to scale platforms to $100 million when most people can't get a tenth of the way there? For me personally, I'm a visual thinker. And I'm a a visual learner. So when I teach, I teach visually. So uh growing up as a kid, I was dyslexic. So like I like to read, but it has to interest me. I'm a hyperactive person. I don't know if you can tell that or not, but um so when I read, my mind wanders. I learned through the years to give myself permission while I'm reading to let my mind wander. I learned a little technique for you ADD people in the room is put your finger where you were, let your mind wander. Eventually the mind stops wandering, right? And then you go back to it. So, interesting enough, how I'm different in my head is um I can put the pieces of the puzzle together in my head visually by dumbing it down for myself. So, you get in lean with people like you guys and you guys want to use all these fancy words and and I don't. Um, but I want to lean what they are. So, I say I love being the dumbest person in the room. When you use a word that I don't

20:34 understand, I'm the guy that goes, "Hold on. What's that mean?" And you go, "Well, uh," and you explain what it means to me. And I go, "Okay." And I can visually connect that to the pieces of the puzzle where I think a lot of people can't do that. It drives them crazy from me being on the board. You can ask her. It drives her nuts because I go, "No, no, no. Because if this does that and that does this and that and that and that's why it won't work or that's why it will work." And they go, "How the hell did you get there so fast?" Cuz I move it all around in my head visually. I'm way different that way. I know you said that you really got started uh raising capital, getting your first few facilities almost on accident. But then was it a vision to grow it to 100 million or was the whole thing just kind of like unfolding in front of you without that vision? Um, you Robbie thought we'd do fewer deals in 5 years and we did 52 in 8. So, um, it's totally by accident. Like, I'm not that smart, guys. Like, um, it was by accident really. Great. Uh, final question. Um, any final thoughts on kind of, uh, negotiating great deals, sharp terms, good valuations, uh, closing investors? Anything else you want to add that we haven't covered?

21:47 Uh, no. You got to be pretty. That helps, right? Um, we're happy to see. Um, the biggest thing I think is um is try to be a like try to be authentic and be who you are and and be transparent. Like one of the things that really bothers me and like if you ask anybody inside our company like I'm I want to work to be a good person every day and because of that when you say like you all you guys know this well my F is this and my IR is that and blah blah blah blah blah and then 2023 and 24 happens. So what do you do? Like so what you do is you be transparent and you be honest and you So I know I highlighted that a little bit, but the I really think that that's how you continue to build credibility is by telling them what's happening and what's not happening. And don't sugarcoat it.

22:55 Don't like that's the thing you get from me is I'm blunt in a positive way. But the the best I can tell you is is don't run from them. Don't hide from them. Tell tell them what's going on. Awesome. That's great. Let's give them a big round of applause. Thank you. Thank you. Join the family office club by visiting family offices.com. We look forward to seeing you at our next live event.