Navigating Investing through Economic Cycles feat. Ryan Smith | Aspen Funds
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Navigating Investing through Economic Cycles feat. Ryan Smith

In this episode, co-hosts Bob Fraser and Ben Fraser are joined by guest Ryan Smith, the co-founder of Elevation Capital. Ryan share insights from his decades of investment expertise. Focusing on self storage and mobile home parks, he shares insights gained through navigating multiple economic cycles. Ryan offers valuable perspectives on strategic investing at various stages of the economic cycle, coupled with his take on the current macro environment, including interest rates, inflation, and recession concerns. 

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Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of the Invest Like a Billionaire podcast. We’ve got a really great episode for you today. This was an interview that we had with Ryan Smith. He’s the co-founder of Elevation Capital, and it was a really fun conversation. I’ve known Ryan for a little bit of time and I just really appreciate his perspectives. He shares a lot on what it’s been like. He focuses on self-storage, mobile home parks. He’s been investing for a long time and kind of through multiple periods of these cycles. And so it really gives some great perspective on how to invest at different parts of the economic cycle.

He shares his perspectives on the macro environment right now and you know why he is not really concerned or even paying that much attention to the headlines with interest rates and inflation and recession, all these things going on and shares why. And then finally he shares what he is.

Is looking at his verticals of self-storage and mobile home parks, and what’s the latest going on in those asset classes. So you definitely wanna tune in this episode. Ryan shares a lot of wisdom, has a unique investment philosophy. I think you’re gonna enjoy it. This is the Invest like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth.

The tools and tactics you’ll learn from this podcast will make you a better investor. And help you build legacy wealth. Join us as we dive into the world of alternative investments. Uncover strategies of the ultra wealthy, discuss economics and interview successful investors

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We focus on macro driven alternative investments, so your portfolio is best positioned for this economic environment. Get started and download your free economic report today. Welcome back to the Invest Like a Billionaire podcast. I am your co-host, Ben Frazier, joined by fellow co-host Bob Frazier. I

Today we’ve got a really special guest. I’m very excited for this interview with Ryan Smith. He is the co-founder of Elevation Capital Group and he and his wife started this firm many years ago, and I guess with the backstory there, but they have scaled it. Very effectively over the past years and now have over 20,000 units in mobile home parks as self storage assets.

And I met Ryan probably a year or two ago and really just appreciated who he is. And I’ve heard him on other podcasts and just really loved his perspective on investing. So I wanted to bring ’em in. So I really wanted to hear what you’re doing in this kind of current market cycle. See how you view the macro picture.

I think you have a really unique perspective on just the macro. And then obviously wanna get the updates on what’s going on in self storage and mobile home parks. Obviously there’s. Things going on in the broader environment that people are concerned about, but would love to just hear your perspective.

Ryan, thanks for coming on the show and looking forward to this chat. 

Ryan Smith: Thanks for having me. I’ve been looking forward to it. Yeah, so 

Ben Fraser: maybe start off just a little bit with the origin story. For those that don’t know who you are and it’s always fun. It’s sometimes hard to get people like you on podcasts because you’re actually operating.

Very successful and a large business, but I feel like the perspectives that you have are just really valuable. So share a little bit of just who you are for those of you who don’t know your story. Yeah, 

Ryan Smith: So just I guess succinctly my entrepreneurial start came from growing up in a real estate family very blue collar.

So I had a awareness of real estate at a young age. I was scraping wallpaper, digging trenches. I think the worst thing I ever did was replace the wax ring on a toilet. I distinctly remember that as a young person. I understood what real estate was at a young age. Ended up doing all my father’s underwriting and his financial modeling and as a teenager.

Today’s his birthday, actually, we’re gonna celebrate tonight. But it was my role in the family business to help do the modeling and the forecasting. Parallel to this, I started learning to code when I was eight. A, a nerd in, in, in a way. And so ended up learning 13 languages, computer languages.

And I would basically code apps for any business owner in town that I’d go to. A business with me. Family with my mom, my dad, or school. And I’d see just a plain solution that software could solve. I’d write an app, put it on a disc, hand it to ’em and say, I think this will be the problem. So I liked writing software, so I took it upon myself to build an application that my dad could use for his business that did all of his financial modeling without needing me.

So it was selfish in a way. I endeavored to one day leave the home. But in short I spent about four months. He didn’t know about it. And I coded this app in Borland. C I. And just, presented it to him. He was pretty blown away. It worked. And so he told a friend who told a friend, and so anyway, in short, I had about 130,000 users of my software, mostly mom and pops, using my software to evaluate their investments globally.

Ended up selling that company. But it was provided in the time that I built it up, it was about a 10 year span. Made a considerable amount of money off that software company. Took that income, with my wife Jamie, who I connected with her along the way and she has a significant managed property management background.

So she and I convinced her to not become a lawyer and to join me in building a business. And so she and I linked arms hand in hand and started to build the business. And we started with single family residences. We used the capital, we had earned and saved the software tool that I had built.

And we started building a portfolio of residential, which we built. We bought about 30 houses in our early twenties. So about 20 years ago in and around Orlando long term, mindset. We found it wasn’t that scalable and so we started looking at it. Businesses accomplished four things for us and we wanted cash flow, capital appreciation, tax benefits.

And then, it could be said in a lot of different ways, low beta, low correlation, cycle resiliency. It’s all the same thing. So we wanted off the rollercoaster ride of economic cycles. As much as we can. Sometimes you’ll see recession proof and I’m a little dubious over those kinds of claims.

But anyway those were the four things we wanted. So we spent a long weekend. We created a, we evaluated every asset class we could think of on our dining room table and put the models on the table and at the end of the weekend, And we evaluated everything. Hotels, motels, retail offices, the gamut.

And the two that seemed to be the most compelling based on our rudimentary analysis were storage and mobile home parks. And so we started building a portfolio around that time. In the first six, seven years, it was all our own money. And then we started our first fund in 2010. 

Ben Fraser: Awesome. Okay, cool. So talk a little bit before we get into the asset classes.

I’d love to spend time more at the macro level because I think one of the unique things that you bring to the space and you, one, being in this, in real estate investing for a long time, but two, just, you’re not just a pure operator. You also have a lot of great perspectives on just the macro environment.

And Talk a little bit about what you’re seeing this cycle. What’s your perspective on where we’re at in the economic cycle? How is that changing, if at all? Your investment thesis and what’s your, what’s your plan strategy this year and the next year? You say right now?

Ryan Smith: Sure. And so I, our views, I would say, Our goal in life is to consistently make things more simple and as I’ve gotten older I could, I can say in a sentence what used to take me a lot longer to say, it was like the, I think Mark Twain, if I had more time, I would’ve written less.

So to us we’re pretty simple in our view. We want to own. Really quality assets. And for what it’s worth, there’s far fewer quality assets than our claim to be quality assets. So there just aren’t that many quality assets out there. And not many of them come up for sale in any given year.

So there’s a limited supply of quality assets, but that’s what we wanna buy. Quality. And I can go more into detail on what that is, but in short, we want to own quality. Then, you know what we think a lot of people are. Everybody has their different motivations and reasons for doing things.

But for us, if you buy something really well located, that’s quality, you wanna hold it long-term. So you wanna buy quality, you wanna hold long-term, and that’s across many cycles. The water will go out, the water will come in, you it ebbs and flows and there’s benefits to those cycles, but we’re not trying to time.

Time for any particular cycle. So we’re not overly optimistic in that way. In short we want to buy quality and hold it long term. And the primary reason you’re not able to hold the property long term or you have forced sales is you have too much debt. Debt is the motivating factor for Kind of a forced liquidation in most cases.

So we use very low leverage. We have a portfolio of about 300 million in assets right now that has about 40% leverage on it. So it’s pretty, pretty low. So we want to own quality, hold long term, half low debt and then optimize as cycles. Give us the ability to, but that’s in, in short, that’s our view of things.

Ben Fraser: Got it. Yeah. So definitely a unique investment thesis, especially amidst all the we talked about in previous podcasts, real estate syndication bubble where everyone and their mom who saw someone on Instagram get rich through real estate, decided they could go syndicate and you high leverage bridge debt and other things too.

Get into this space, but ultimately set themselves up for failure. One of the things that I wanted just to dive into a little bit, and this is something I actually I’ve heard you say on another podcast, that was a pretty simple kind of framework, but for me it was very, we were very helpful to understand you as you’re investing through economic cycles, this kinda longer term mindset.

And I think right now as investors, People are a little bit scared, right? They’re just a little hesitant. They’re wanting to just sit on cash and wait to see what happens. And there is a good case to be made for, being a little more conservative, sitting on some cash and having an opportunity, fund.

But we also have this arch nemesis called inflation that’s eroding the value of our dollar. And one of the things that’s really interesting and I’m gonna drop some knowledge back on you that you dropped a couple years ago when I heard you, but. One thing you were talking about was, as you go into these different cycles and as you have, interest rate increases like we’re seeing right now, a lot of times that’s due to an over-exuberant economy and they’re trying to slow down the economy.

And when that happens, a lot of times there’s inflation, right? Because it’s not in every cycle, but obviously in this cycle it is. While you have higher interest rates, that can put pressure on cap rates. So it may not be a good time to sell. That can be a bad time to sell if you have to sell.

But inflation generally is gonna be a benefit and a tailwind to those that are holding and owning real assets like real estate. And then as a cycle kind of peaks and comes back around, as the economic slowdown occurs and they need to juice the economy again.

They can lower interest rates. Then obviously it helps create more headroom on pricing and can put less pressure on cap, right? So values can expand again, and meanwhile you’ve had inflation that has helped continue to force appreciation and you can as an owner of real assets, right?

That, and then you can expand your NOI while that’s happening. And then as the multiples on those, on that N O I increases, you can potentially sell at that point. Obviously a very kind of simple analysis and framework, but to me it was really helpful. As it can be really hard to not get lost in the noise of what’s happening, especially right now as we’re in the middle of this transition in the cycle and we’re seeing interest rates increase, the facets they’ve ever increase in history actually haven’t checked for probably right now, they’re about to announce another 25 basis point increase.

And. So it feels like all this, tightening of the noose a little bit, for a lot of people. And then to the earlier point, a lot of people bought real estate with bad debt that’s gonna be maturing this year and next year with low interest rates and very aggressive business plans.

And a lot of them aren’t gonna be able to make it through. So they’re gonna be forced to sell or liquidate in a time. Maybe not a good time. So maybe expand on that. Maybe I didn’t explain it perfectly. I feel like you said a lot more eloquently, but. Talk about that, how you view market cycles, obviously have a very long-term perspective with your strategy, for those that maybe are more opportunistic in their approach, how do you play the cycle a little bit?

Ryan Smith: I think Yeah. I thank you for that. That’s helpful. I think a lot of people, and certainly not everybody, but a lot of people tend to look at a portion of the cycle in linear terms. So it’s, I. We all know cycles happen and they ebb and flow, but for whatever reason, when it’s good, it’ll never end.

When it’s bad, it’ll never end. And that good and bad is really dictated by a third party telling us if it’s good or bad. It’s and then it just rinses and repeats. So for us, there’s benefits to both sides of the cycle and almost Newtonian. They’re almost equal and opposite.

In the runup that we just had, call it I’ll arbitrarily say 2017 to 2022, or, present, we had, to your point, we had free and easy money, huge increase in money supply, and that money was looking for a home. So cap rates. Fell prices rose, multiples rose.

And so that was the benefit of that cycle if you had an expansion in terms of multiples. But really the benefit of the cycle we’re in now and going into is you have an expansion of the N O I, which at the end of the day is probably the most important part of the business. And so to the extent that you’re.

Business is able to pass on inflation to the customer. Which, I would say is the sole and only definition of a good business is whether or not a business can pass inflation onto the customer. If you can’t, it’s a terrible business if you can. I. Has, has merit. But the point is if you can pass inflation onto the customer and you expect inflation to be at an elevated state, then you’re saying, okay, to the extent that can remain true.

You have a business where, market forces, i e inflation’s gonna do, let alone forced depreciation or other, other initiatives that you bring to bear that adds additional revenue, whether it’s adding additional units, other line items or revenue, but all things being equal to market is gonna help you really grow your revenue.

And so when you look at it in the whole and you plug the two together, which is why we’re long term ’cause there’s a lot of value that’s unlocked by holding, not through a cycle, but through cycle changes and having that long term perspective. You might get from let’s just say, let’s take it from this cycle.

You say you buy an asset today and you grow the N O I X percent over the future, you might take $1 to $2 and invest in capital through, n o i growth over that period of time. But if you own that asset through the next expansion area, the multiple expansion time frame, when money becomes easy, interest rates are reduced, all of that and values rise.

The interesting thing is, prices typically don’t regress. And we pay, unbelievably, we all freely pay five to $7 for a gallon of milk when we all remember when we grew up there was 99 cents or whatever it happened to be, depending on when you were growing up. 

Ben Fraser: You’re saying prices don’t regress usually at a consumer level, right?

’cause obviously prices for assets can change, but as you mark up prices at the consumer level, a lot of times they’re not pulling ’em back even when the correct margins expand. 

Ryan Smith: Correct because people get used to it. They get used to the new. So if inflation comes and we’re able to pass it on, our revenues should grow long into the future.

And then when the market cycle shifts and goes from more, n o i growth to inflation, to maybe lower inflation, higher growth, more multiple, I’m now getting a growing multiple on the already grown n o i and it becomes, at $1 to two in the first cycle, might go $1 to four. And because of the second additional cycle and so on, and then you rinse and repeat that over multiple cycles and it just gets really pretty silly in a good way.

Which is then to our thesis, which, or not thesis, but our kind of a philosophy, which is, you sell bad assets, you keep good assets. Again, overly simplistic, but that’s what we want to do.

Bob Fraser: Inflation, as we’ve been saying for a while here on our podcast, is your best friend. At 8% inflation, the value of things will rise in dollar terms.

It’ll double every 10 years. And a 4% inflation is doubling every 20 years. So you think 4% inflation is mild, but doubling in 20 years is a big deal. Especially if you’re leveraged a little bit the value of that asset doubles, but your equity way more than doubles. The other thing that people don’t think about is that the value of a dollar decreases.

We all know that, but that means you get it on the debt side as well. The debt, the value of the debt is being eroded. And so if cash is on fire, inflation burns up cash, which it does well, then owning negative cash, which is debt, you want it burned up. And this is the big secret that our government knows: just 6% inflation gets rid of 50% of the debt in 15 years. And very few developed nations have defaulted on their debt. They simply inflate it away. And so it’s the giant secret and. So again, you can get mad at these things and you can get upset or you can play the game and play the cards you’ve been dealt.

You don’t like the price you’re paying at the gas pump and will get on the other side of the gas pump you don’t like. Inflation will get on the other side of inflation and let it work for you and to your point, you know what the price of an asset you don’t determine but the value of an asset.

You, you can determine the value of an asset, meaning, okay, you hit, you talk about n o i, that’s net operating income. That’s the profits generated. Apart from debt service, it’s the profits generated by that asset. If inflation is there and it’s growing, the value of that asset is going up.

Right now, the price of that asset, we’re not in control of it. It’ll come and go. All you gotta do is wait for the next wave, right? And you got a negative wave. Okay don’t sell it. You got a positive way. Now you can entertain selling and make great returns. But yeah, inflation is, and long-term thinking and inflation is definitely a way to win in real estate.

Ryan Smith: Well said. Yeah, said. 

Ben Fraser: So Ryan, how do you as an investor, one of the, one of the challenges is this is easy to say, right? Everyone understands, contrarian investing in theoretical terms. Is a good idea, but it can be difficult not to succumb to emotions. And to your point earlier, through these cycles, the value of whatever asset we’re talking about is usually dictated by some third party that probably has a bias, probably has something that is not a hundred percent pure motive.

So how do you, as an investor, try to remove yourself from that? How are you? Think long term, how do you evaluate something in the long term when it’s difficult in these kinds of intermittent cycles? And not to just say, oh man, real estate’s dropped by 30% over the past year and this is a new normal, so now we’re gonna have higher interest rates forever.

And it’s, give us some perspective there as an investor with real human emotions, how do you navigate through the challenges when you’re trying to, You wanna have some cash for reserves, but you don’t wanna have too much cash and let inflation erode away.

Ryan Smith: Yeah, no I think there’s I guess to answer that I’d go to say a couple of different things. But I think to the point, Bob just made, which I thought was really great and clearly stated, I think under having your own view. ‘Cause to you, the point of your question, what I’ve learned is most.

Most passive investors delegate really fundamental decision making to third parties. ’cause they don’t trust themselves. Yeah. Not all but a lot of them do. It’s, they’re investing ’cause their friend is, or their dad is, or their advisor. But very few of them say, I’ve looked at it, I like it.

I’m moving forward. Come what may, and ultimately and we have that, I have an investor of ours who’s an unbelievable guy. He’s been in. Five of our funds. He’s one of our early investors and his first investment with us, when I think I was, gosh, I was 32, my wife was 29, which is really unbelievable now looking back.

But his comment was, I, I believe in you. I believe in the model, and if I lose a hundred percent of my principle, I’m okay with that because I, not that it was that risky of a gambit. But to the point of making a decision he had decided he was good with whatever the outcome was and acknowledged the outcomes, which I like.

But to the point is, having a view independent of third parties. Seeing, understanding, price and value, understanding what long-term cycles can do to benefit you. But basically developing your own view and making your own decision, I think is important.

And to that end, I think believing in yourself and then self-discipline, ’cause it’s, we all know what it takes to lose weight. But our country obviously struggles with that. There’s the simple truths are simple and they remain simple. Doing them’s hard ’cause it takes self-discipline and commitment and all of those things.

And. We as humans, myself included, struggle with that. But I think those three pieces I think can help. Certainly not exhaustive, 

Ben Fraser: But Yeah. I love that. Let’s get a little more technical here. ’cause I think one of the things that’s been really interesting this year in particular in 2023, is obviously inflation is a great tailwind for rent growth.

So for top line revenue as a real estate owner, That’s gonna be one driver of n o I growth, right? You can have two levers, increase your revenue or decrease expenses. And that’s the natural thought. And hey, that’s, let’s cheer on inflation. But the other side of it, which is the not happy part, is the expenses.

And we’re seeing massive increases in operating expenses of these assets. And to me it seems like a lot of times, The top line rents because they are you can adjust them to inflation pretty quickly. ’cause even on a multi-family property, your longest cycle of locking in your rent is usually a year.

So you have 12 month leases. And so you can adjust it at least annually, if not a lot sooner. You can mark to market faster, but the expenses seem to be a lagging indicator here on, and they’re now Realizing that we’re seeing massive increases in assurance and in payroll for the labor shortages.

Obviously real estate taxes are going up as values have increased. So how are you just as an operator kind of managing through that? Because it feels oh man, my n o I is actually getting pretty compressed right now. Not only on debt service and hopefully a lot of your deals have locked in interest rates, so you’re not being impacted on that.

But higher interest rates, higher insurance, and yeah, we’re. Trending the top line pretty well. But hey, we also have a massive amount of new deliveries and multifamily especially. But yeah, we’re also seeing some softness and absorption in self storage and these other asset classes. So how are you getting real, technical right now?

How are you managing through this cycle in some of the more nuanced ways? 

Ryan Smith: Yeah good question. I’ll hit the debt part first. So we’re always long-term fixed. Always. That made us somewhat unpopular, probably in the last year, 2019 to call it 2022, when you could get much lower if you did crazy things.

And we said, no, we’re, we’ll go for a long-term fix. Now. We, I’d say, look brighter than we did then. But no, we’re generally five to 10 years fixed rate debt. So we have a pool of assets right now at our fund seven. It has about 300 million in assets and it, I think the average interest rate’s 4% fixed with most of the a lot of the loans fixed until 2030.

So we’re sitting pretty and I think our lowest rates are 2.5 in, in that pool. So we’re always about fixing our debt, so we’re not that exposed. To, so it’s low leverage and fixed rate. So no matter really what happens to the, to the price of the asset, the multiple, or, we should be more than fine, have a enough headroom or what we call a margin of safety to your point on expenses.

Our labor expenses have gone up, but are not gross. It, it’s. They haven’t been overly severe. They’ve gone up incrementally. But we haven’t suffered too much. ’cause mobile home parks and storage do not require a lot of labor to operate ’em. And we have several, for example, we have about $60 million in mobile home parks in the Washington DC Metro, managed by one manager.

So it’s. If hers goes up, it’s insignificant to the overall performance of the assets. So we’ve seen a little bit there, not a ton. Insurance, to your point, has skyrocketed in, in its varies by location. The Florida properties certainly are seeing higher rates.

And so we’ve had to get creative with insurance. Without taking what we feel is too much risk. 

Ben Fraser: Got it. Talk a little bit about just self storage and mobile home parks as asset classes and what you’re seeing. I think it’s a similar refrain. We’ve seen a multifamily as well, where we’ve had a massive runup in rents the past several years.

2020 2022. I don’t know what the national numbers were on rent growth numbers, but they were extreme, outside of the mean. Now it’s slowing down a little bit. And now because of that, a lot of new development came online and those deliveries or the things that were started two years ago are now coming online and being delivered to the market.

And a lot of predictions are saying, Hey, over the next 12 to 18 months, absorption is going to be pretty, pretty slow because of a lot of new products coming into the market. Meanwhile, we’re already having a little bit of slowdown in rent growth. If not, negative rent growth.

So how are you seeing that at a broader level across your assets in self storage? We have all assets that we own in this space, and obviously our listeners have self-storage investments as well. So what are you seeing just at the broad level in your portfolio?

Ryan Smith: Yeah, I think at a, as at a higher level, just theme. I think these kinds of times are when the historical models are stress tested, meaning. We have all tried to buy what we believe are quality assets well located as stated earlier, and I can go into more detail on what I mean by that.

But when you, I’m sure you’ve seen the same thing over the last couple of years with the syndication kind of boom, where every asset is unbelievable and it’s unbelievable ’cause I said it is a thing. And there were a lot of tertiary, non. Non-optimal properties. And so the point is it, that doesn’t mean they’re a bad property, it’s just that they may suffer a little bit more during economic cycles.

Like we’re seeing now. So for example, in storage, we’re all, one of the big actually number one on our checklist is are there barriers to entry? Against competition. That’s number one on our list, and it’s a long list, and every year it gets longer. But number one is barriers to entry.

So you know, as an example I can give you examples, but the point is it’s high barriers to entry. So we have historically not bought anything. And in the last couple of years, you and your listeners would’ve seen this in any market across the country. Just the bevy of new storage being brought online generally in the outer rings of cities, in the path of progress building where they hope one day people will go and grow and live, and density will avail itself.

And so we are much more inclined to buy a property very well located with very little land available for sale. They would almost have to buy a property. For another use, tear it down and then build storage, which would make no sense. So very high barriers to entry. And good dynamics in the market.

And I can give more examples to this, but I say that to say, we have an, I saw an article in the Wall Street Journal, what is now yesterday talking about. On the whole, how, and I presume they’re talking about street rates, how street rates are down 20% from last year. Which is interesting.

Ours are not ours, we have some properties where we’re discounting a little bit more, but not much. We’re definitely not down 20%, but that’s also the benefit of storage. Our average customer stays for 1200 days right now. And so that’s more than three, more than three and a half years, let’s say.

On average. And so even if we have to discount whatever it is, a dollar a month or $50 move-in special or two months free, or, one, one month free, any of those things that doesn’t preclude us from pushing rents four months from now. ’cause good points of the year, both mobile home parks and storage are month to month, which is great.

So we can be really tight to the market, but we’re not seeing, I am seeing a glut of in some cities there’s a lot of new supply. Let’s say Nashville is one. And there’s several others. So depending on where, if somebody is invested in a storage facility, depending on where that property is in conjunction with new properties coming online, it could be soft for a couple of years.

But, it’s really property by property based. Yeah. And do you think a 

Ben Fraser: A lot of it is the slowdown of absorption is due to new deliveries hitting the market? Or is it also I. Part of, just in this, in-between part of the economic cycle. Part of the thesis I’ve heard of self storage is that it does well in change, right?

As people, as the economy is booming and people are doing well, they’re expanding, they’re moving, and upgrading to a bigger house. So they’re, having things in storage or, down cycle, they’re downsizing, they’re putting stuff in storage ’cause they don’t have room for it.

’cause you’re going to a smaller apartment or smaller house. Right now we’re in this, we’re in between, at the middle of 2023. Where we haven’t seen a recession and we have a lot of mixed signals and it’s still a wait and see mode. Is you think that’s also impacting some of that, slowdown in activity or kind of 

Ryan Smith: Both ends?

I think that’s fair. I think, yeah, storage benefits and kind of friction people moving up, down sideways. That all benefits storage, but to your point right now, I think everybody’s holding their breath, waiting to see. They, you consistently hear the soft landing is coming, we’re gonna achieve it.

And I don’t think most people believe that. So they’re standing by, waiting to see. But I think storage will be fine. I think it’ll be a great asset class in the long run. But I do think there’s a lot of supply coming online, although New supply is on the decline because the cost of capital’s up, material costs are up.

And the softness that is being reported is, so that’ll in turn, help the next leg to be. Yeah, 

Ben Fraser: No, I think it’s a really important point because you think about all the new deliveries that are coming online, whether it’s self storage or whether it’s multifamily, a lot of those were started a lot of times, several years ago.

And, at a different eco point of the economic cycle. And so right now the products that are being started now, like multi-family, I’m using as an example, it takes about 20, 18, 24 months to actually bring units online. And so it won’t be until the middle of 2025 before you’re starting to lease those units.

And right now we’re seeing the amount of construction starts. So new projects are hitting the ground and getting going. Has fallen off a cliff, which is to be expected because the cost of capital has risen so much. Banks are pulling back and really tightening the lending standards. And so for the next 18 to 24 months, maybe absorption is slower because of all these kinds of historical deliveries coming onto the market.

But if you’re a long-term investor and you’re investing in good fundamentals where there is long-term demand, In 18, 24 months. I’m really excited about the projects I’m starting right now. It’s a lot harder, a lot harder to get deals done right now, but I’m not gonna have as much competition down the road when I’m delivering those.

So I think it’s an important point to make because, to your point, these kinds of expansions and contractions, they’re not linear and sometimes things we’re seeing right now happen as a result of decisions a couple years ago and vice versa. 

Ryan Smith: A agreed. You, I, so there’s an economist who’s an interesting guy who most people will probably know well, and Jamie and I have become friends with him over the years, but his name’s Ben Stein from, Buhler or Buhler.

Sure, yeah. He tells a story of, this, he tells Jamie and I over dinner a couple years ago, this story of. A house he bought in Beverly Hills, I think he bought it for 400,000 if memory serves me correctly. He ended up selling it for, I think it was roughly $2 million to a guy he thought was the greatest fool on Earth, paying $2 million for that house and that house as it sits.

Today’s worth over eight. So his comment was, I thought he was the bigger fool and, and he had the right to think the same or something. It was funny. So the point is that in that house, let’s say all that is, to my memory accurate. If he bought it for $400,000 or 600,000, what would that change in the outcome?

Yep. You have much. If you look at 400 and 600 and remove everything else, it’s a huge difference. Yeah. And to that point, y we’re not, we’re definitely not frivolous, nor are y’all in, in making acquisitions. It has to, pencil has to make sense. But ultimately you have to play the game and there’s a huge cost in waiting.

And thinking you have an accurate view of what’s gonna happen two years from now and waiting to that point. ’cause if you’re wrong it could cost you a lot. We’re really big believers that you gotta play the game, you gotta put chips on the, should we call ’em chess pieces on the board?

You gotta put chess pieces on the board and. And play the game. And we just bought a to that end, we just bought a property three weeks ago in Vero Beach, a storage facility. So we’re still acquisitive. And we obviously we like storage bought one three weeks ago, and we think it’s gonna, 

Ben Fraser: And theoretically, right now could be a great time to be buying, right?

Because there is less competition because of the cost of capital and it’s not as frothy as it was before. And so if you’re going after the quality assets, you might be able to get ’em a better 

Ryan Smith: basis. Yeah. And if you look at the cycles, if one plus one equals four and the multiplication of the cycles, then you know, there’s, as long as you hold long term, there’s no bad time to buy.

’cause you still get one plus one equals four to a degree. So yeah, I mean we’re, there are transactions that are, there are times at which transactions are easier to come by. For us, we’re not trying to be market timers. ’cause it’s. Maybe you could have waited a little bit, maybe not, but there’s so much risk in being wrong.

We’re just, we want to buy good assets. Located, given the concept that there’s just not that many good ones out there. So if you see something you really like in an area you really like with a team that you like, and a model that you believe in, The chance of something else coming anytime soon like that, there’s not that many good deals out there.

There just really isn’t. I’m a big believer in just taking action and moving. When you see something you like and live with it, and if you can’t live with it, then you know, that has nothing to do with investing. That’s a, and I’m not qualified to counsel on that, but that’s something else.

Ben Fraser: Awesome. Any final thoughts? Where do you go from here? Just as an economy in the middle of 2023. I haven’t checked the Fed Minutes yet, but I’m assuming they bumped rates. Probably, hopefully second to last time or close to it, but where do you see the cycle going from here?

Do you think we’re gonna get inflation under wraps or are we holding on for a 

Ryan Smith: longer time? Yeah, no, it’s interesting. And to a degree, if you’re a long-term investor, you really don’t have a dog in the fight. It’s more entertaining than that, in terms of the kind of noise surrounding it.

But yeah, for, if I were to give you my, my, my best guess I, I think the fed’s gonna have to see it through, so I think they’re probably gonna. Overdo things like they normally do, and it’s a guardrail kind of management process. They’re gonna hit the guardrail and then bounce off and probably head to the other guardrail.

I have no idea when that’ll happen. I. I think they’ll overtighten, break a couple of things and then come to the rescue with QE round 27 and, and that we’ll, who knows? But I do think I do think we have, I don’t think we’re gonna go back.

I think the presumption is that as soon as the Fed pivots, we’re gonna go back to the high times of 2021 and 22. I don’t necessarily buy into that. But I think it’ll be more normative. More boring, which is fine. Yeah. That 

Ben Fraser: was probably the other side of the guardrail with, really cheap, easy money and Right.

Ryan Smith: I don’t think going back there anytime soon is my guess. I think sometimes people think we are, and they’re holding their breath when that happens, but I don’t think we are. And for what it’s worth to the point of our earlier discussion, If I had to pick which cycle we set, we sat in the longest.

I think the cycle we’re in right now and going into, I wouldn’t mind sitting in that longer than the other one. 

Ben Fraser: Got it. Very cool. Ryan, thank you so much for coming on and sharing some thoughts with us here and definitely got a lot out of it personally and appreciate you sharing with our listeners.

Ryan Smith: Yeah, and you bet, always enjoyed time with you and Bob, I think highly of y’all. So thanks for including 

Ben Fraser: me. Appreciate it. What’s the best way for folks to reach out to you, hear what you guys are doing, elevation? What’s the easiest place to, to get in the loop on the mail list or otherwise?

Ryan Smith: Yeah anytime anybody can email me at

Ben Fraser: I thought you were trying to keep things simple. You just give out your email address, but yeah. 

Ryan Smith: You’re a very generous guy. So we have no sales team. No sales. 

Ben Fraser: Awesome. All right. Thanks so much. Really appreciate it. Thanks for coming on.

Ryan Smith: Have a good one. Bye.


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