April 24, 2022

JF2791: Shifting Tides in the Self-Storage Industry ft. John C. Lindsey

Self-storage is a family business for John C. Lindsey. His father got started in the business in 1969, and in 2012, John and his brother started Lindsey Self Storage Group. They have participated in virtually every aspect of the business: brokerage, owning a portfolio of stores, owning a management company, and building sites. Today, he says their focus is on self-storage brokerage. In this episode, John talks about being a second-generation self-storage investor, some of the high-level tactics of how to be successful, and shares advice for multifamily operators and investors interested in transitioning to self-storage. 


Self-Storage’s Recent Surge in Popularity

“As we came out of the last recession, I think people started to realize that storage was the only asset class that performed really well through the downturn,” John says. Since 2012, there has been hockey-stick growth within the industry that hasn’t been slowed by the pandemic. While offices and hotels have struggled since 2020, self-storage has continued to thrive — and investors in other asset classes are taking notice.


Future Headwinds 

Due to the number of new entrants and the amount of capital being deployed in the industry, self-storage is seeing oversaturation in some markets. “People are overbuilding, they’re building on top of each other and they’re ignoring feasibility studies,” John says. In hyper-growth markets in the Southeast, oversaturation will likely be a short-term problem due to population projections. However, there are some markets in the U.S. that John doesn’t think will bounce back as quickly — those are the markets he predicts will face massive headwinds. 


Advice for Multifamily Investors Interested in Self-Storage 

John says it’s imperative to anticipate rising debt when making offers in the current economic climate. The Feds have predicted seven rate hikes before the end of 2022, and while he isn’t certain that will happen, even four or five hikes will have a major impact on interest rates. “If you’re not building that into your model, we’re going to see a lot of retrades and a lot of bad deals get purchased,” he says.


John C. Lindsey | Real Estate Background

  • Co-founder and president of Lindsey Self Storage Group, which focuses on self-storage brokerage, development, and management.
  • Portfolio: Recently exited a 400K NLSF self-storage portfolio
  • Based in: Durham, NC
  • Say hi to him at:

Greatest lesson: Don't step over dollars to chase pennies.



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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I'm Ash Patel and I'm with today's guest, John Lindsey. John is joining us from Durham, North Carolina. He is the co-founder and president of Lindsey Self-Storage Group, which focuses on self-storage brokerage, development, and management. John's portfolio consists of 400,000 square feet of net lease self-storage portfolio. John, thank you so much for joining us and how are you today?

John Lindsey: Ash, great to hear you, man. Hope all is well in your world. It is a beautiful day here in Durham, North Carolina, so no complaints.

Ash Patel: Very cool. John, before we get started, can you give the Best Ever listeners a little bit more about your background and what you're focused on now?

John Lindsey: More than happy to. My father started in the self-storage business in 1969. I grew up with him pouring concrete, running slabs, and covered job sites all over the southeast with him. Coming up, I said, "Dad, I love self-storage, but I hate pouring concrete." In 2012, my brother and I started the Lindsey Self-Storage Group. As you pointed out in your intro, we do brokerage all over the US, Europe, and Asia. We owned our own portfolio of stores as well, we sold that in December of 2021. We also had a management company which we sold in 2018, and we've continued to build sites as well. We've touched pretty much every single facet of self-storage you can imagine, but I would say that brokerage has certainly been our bread and butter over the past decade.

Ash Patel: Interesting. Second-generation self-storage investor - this is a lot different than your father’s days, isn't it?

John Lindsey: Very much so. It's interesting because I used to talk to my father all the time about, "Hey, how did you pick this site? Or how did you go with the bank and do this?" He's like, "Well, I just thought it was a good corner. I walked into the bank and tell them I needed this, and they'd give it to me." I was like, "Wow." I can't imagine that today, just thinking it's a good quarter or good location and just whimsically asking for a, "I think this is enough amount of money." Times have certainly changed, but it was a really fun kinship to share with my father, my brother, and I as well.

Ash Patel: That is awesome. John, I got to ask you why has self-storage erupted in the last few years? If you look back 10 years ago, nobody bragged about, "Yeah, I just bought 300 self-storage units." Now everybody's chasing that.

John Lindsey: It's really interesting, because as you correctly pointed out, in 2012 banks wouldn't lend us a dime. We were begging them to give us loans, and they were not great terms. But as we came out of the last recession, I think people started to realize that storage was the only asset class that performed really well through the downturn. It did really well '08 to '11 when everything else was hitting the fan, storage thrived, while the REITs performed extremely well, and the trends started to catch on.

From 2012-2013 until now, we have seen this hockey stick growth in the industry, not only of consolidation, but also in construction spending, it has just been a whirlwind. And really, even through COVID, I think we've seen the gas pedal just completely mashed, because again, when you're seeing office, hotels, hospitality, and everything kind of fall by the wayside, storage, again, has thrived through one of the worst times in American history in relative years. I think all of that capital that was once looking at storage as kind of the ugly asset class in the back of the industrial park has seen, "Wait a minute. Now it's this beautiful class A asset on main and main. Oh wait, it also does really well." They've already had this capital raise, it's been redeployed into a wonderful asset class, and I think we're here to stay for quite some time.

Ash Patel: Who's the biggest user of self-storage? Because, from my perspective, the only time I use storage was in college, in between semesters. Who's the target market?

John Lindsey: Yeah, it's the three Ds - death, divorce, and downsize. Those are the three drivers of storage. Again, a family member passes away, whether it's parents or relatives, we've got to empty out their house. Divorce - obviously, splitting homes, moving, relocating, and downsizing. Look at 2008-2011, people were losing their homes or their second homes, they had to rent instead of own - all of these were massive drivers for the self-storage industry.

Ash Patel: It seems like there are a lot of tailwinds behind self-storage. It's almost like it's unstoppable. What headwinds do you see?

John Lindsey: One of the main issues that I think we've faced over the past few years - and it's a catch-22 in the industry, is that there are so many new entrants and so much capital being deployed in the industry. It's great because I'm a big believer that a rising tide raises all ships. I think it's wonderful, I want everyone to get into the business. But at the same time, we are seeing oversaturation in some markets. People are overbuilding, they're building on top of each other, and they're ignoring feasibility studies... In hypergrowth markets in the Southeast, the Dallases of the world, Tampa, and Charlotte, that's a short-term problem due to the population projections that we have.

But there are some markets in the US that I just don't think will sustain that, or it will take a very long time to come out of those. I think those will be the markets where people face massive headwinds. On the other side of that as well, we've seen the 10-year Treasury starting to creep up already this year, the Feds promised another six, seven hikes before year-end... So it'll be an interesting recipe to see all these groups that have gone out and raised significant amounts of capital, and trying to get it deployed out the door if they're just going to accept these hyper-compressed yields throughout the year, or if they're going to sit back and pause.

My mind says that they're going to spend through this rising rate environment, because at least it's better to get capital out now before rates get higher. But there will be groups that I think try and fly too close to the sun and try and squeeze those margins too thin, and it might be to their detriment down the road.

Ash Patel: Yeah. So what kind of cap rates are you seeing right now? What are the crazy cap rates you're seeing?

John Lindsey: We've done deals at sub-four cap rates in major markets. Again, 10 years ago, that was unfathomable. We couldn't have given away an eight cap 10 years ago. Now, it's just no one wants it, and to see that type of hyper compression is astounding. But at the same time, with debt as cheap as it's been, there are markets where I think that's made plenty of sense. Especially if there's operational upside, or an expansion play... We are starting to see that climb back up now. The average deals that we were trading in the five to six range are now probably in the six, six and a half cap range, maybe even seven caps in some tertiary markets.

We just have to create enough spread through marketing efforts right now, because we know that there will probably be a rate hike between now and the next 90 days. So it's our job as brokers to properly inform sellers as to this shifting market and where it's going. Because the last thing that we want, and we've seen it already, are sellers who say "Well, my neighbor got a five cap for my deal. I also want a five cap." I'm like, "Well, I'd love to do that for you, but the tides have shifted, and they will shift again between now and when you close." I don't want to backload the market with product that is improperly priced due to the shifting debt market and buyers would be underwater on day one; that doesn't work for anyone in this day and age.

Ash Patel: Alright. It's good to hear that the self-storage market is on its way to equalizing. The multifamily market seems like it's getting hotter. What's your advice to multifamily operators investors that are looking to transition to self-storage?

John Lindsey: There's actually a ton of overlap between storage and multi. There are a lot of operators I work with that are in both. And I agree, I've heard a couple of transactions trade in the three, sub-three cap rate range for multi, which perplexes me. Granted, I'm a wizard in storage, outside of that, and that is where my expertise stops. But I think again, people need to be making offers nowadays with the anticipation of rising debt. It's no secret it's going up, it's not going down anytime soon. The bond market is [unintelligible 00:10:40.05] up by 2024; it kind of reigns back in. But for now, we have promises that it will be raised, and the Fed's predicting seven hikes. I don't know if I believe the Fed that much. But even four or five hikes before the end of the year; that could be another 100-150 basis points. And if you're not building that into your model, we're going to see a lot of re-trades and a lot of bad deals get purchased.

Ash Patel: Have you seen multifamily operators successfully scale in self-storage?

John Lindsey: Absolutely. We've had a number of groups do both. I think when you look at trends in the United States, the two tend to go hand in hand. Again, you're looking at high growth markets, tertiary markets, renters instead of owners, usually near major universities or military bases, or anything like that. So we've seen a lot of success through these. And even when you look at just an efficiency standpoint, a lot of multi guys will buy larger tracts of land to build their multi projects, and they've got an extra three to five acres - well, that tends to bode very well for storage.

I think again, there are a lot of synergies between the two. We're seeing it work very well in a lot of markets. Again, I think the key though is chasing that population growth and creating a supply for the demand that we know is going to occur once that product is open.

Ash Patel: Interesting. You mentioned multifamily owners that have extra land, building self-storage on that. Okay, so all the new self-storage that I see is beautiful, class A, multi-story, LED lighting. Are municipalities still okay with the old metal siding storage units today?

John Lindsey: Yes and no; it depends. I think some markets, absolutely. A lot of tertiary markets are thrilled to welcome any new business to their market, which I think is tremendous. But if you're building a multi-story product or buying a class A corner, not only is it probably required, but there's no way to make that deal pencil for the rents you need to obtain, unless you go vertical, and do all glass, a pretty facade, neon lights, and signage. It's kind of a self-fulfilling prophecy. It feeds into itself with the type of real estate that people are buying... Because again, 10 years ago, people weren't buying main and main corners unless you're in a top 25 MSA.

Well, now we've seen that work. Even here in my backyard in Durham we've seen a number of multi-story class A facilities be built on very main and main locations that have done extremely well. If you had told us a decade ago that would have been possible, I just couldn't have comprehended it. But it has certainly worked its way into the top 100 MSAs, and more tertiary markets, and I think we're going to continue to see that trend for quite some time.

Break: [00:13:16] - [00:15:03]

Ash Patel: You take on investor capital for your deals, right?

John Lindsey: Yes, we have. With all my family deals, we have brought in other investors on this.

Ash Patel: John, what's the typical return to investors?

John Lindsey: Well, let's say across the board in the industry, I think people, if they're looking at acquisitions, are in the one 1.5x to 2x, 15% plus IRR for existing acquisitions. That may increase with development, they'll probably be more than a 2x, 20% plus IRR range. But something that I always tell people when they're looking at storage - storage should be your hedge when stuff hits the fan. This is your multi-generational wealth tool. You don't need to go out and 10x a project; I'd rather do 100 projects between now and the time I die and 1.5x multiple on each of them, and a 15% IRR, and just bat a thousand.

It's all about hitting singles in storage, and I think it gets overlooked. Storage is sexy and certainly has garnered a lot of attention recently. Sometimes I think people get a little bit over their skis and attempt to ultimately launch that five, seven, 10x project. They either build too much product, over-leverage themselves, or don't fully adhere to the feasibility studies they have created for them.

Ash Patel: John, you've got two generations of knowledge contained within yourself; what's the biggest mistake you see people make in self-storage?

John Lindsey: I'd say the biggest mistake I see people make in self-storage is not listening to other industry professionals. This is the most open and fluid industry I've ever been a part of. Everyone is an extremely open book; even your most direct competitors will tell you, "Hey, here's how full I am. Maybe you shouldn't build that 100,000-square-foot facility next to me." Or they just don't adhere to the feasibility studies they've paid for to get them done. I tell people all the time, a feasibility study might cost you $5,000. I'd rather make a $5,000 mistake than a $5 million mistake building a new facility.

For anyone that's looking to get into self-storage, I highly recommend working with the best of the best, whether it's feasibility companies, brokers, developers, or other industry professionals. Listen to those around. For instance, I even just sold my personal residence. I could have done it on my own, because I happen to have a real estate license, but I chose to work with a residential realtor, because that is what they do best, and they do it every single day. I recommend the same for people entering the storage business, work with people who do this every single day.

Ash Patel: John, in all of your years, what's the hardest lesson you've learned?

John Lindsey: The hardest lesson that I've learned was not buying enough self-storage in 2012. [laughs] I think in all sincerity, again, this is a very, very tight network within the storage industry. I think people who do not treat it like that will not be as successful within this space. There are many overlaps within it, everyone knows everyone, and there's a lot of connection pieces. That can certainly work to your benefit, and it does 99% of the time, but it can also work to your detriment as well. Again, I think anyone coming into this space should have open eyes, a full heart, ready to kind of adhere to whatever advice that comes their way, play nice to the industry, and you'll do just fine.

Ash Patel: What's a deal you lost money on and what was a lesson learned?

John Lindsey: To be honest, I've never lost money on a deal that my family owned and operated and sold. But I've certainly lost out on listings before. I'm never regretful of it, because with each one I learned a little bit. But one of the things that we hear the most is, "Well, this other brokerage firm beat you out by $2 million on the valuation." Sometimes we have other firms that overprice a listing just to fish the deal from a seller, and we just refuse to do that.

Something that we've always prided ourselves on is being a long player in this business. Again, we're 50-plus years in the industry now, and I'd rather lose a deal while giving people the right valuation of the property, than win it and not sell it at what I promised them I would. Look, we're here for the long game, not the short game, and I'm fine with being patient and making the right clients, with the right deal prices.

Ash Patel: Do you have all of your facilities close by or do you remotely manage them?

John Lindsey: All of our properties were in North Carolina, Virginia, and Tennessee. The closest one would have been two hours, furthest would have been a 10-hour drive. We do believe in remote management; there is a lot of value to be created from that. All the stores that my family had were were staffed, but again, I think there's an appetite for both, just depending on what market you're in and where you're going.

Ash Patel: What's your best tip for people remotely managing their self-storage units?

John Lindsey: I'd say the best tip for people remote managing is getting the right software in place, and partnering with the right companies. I highly recommend checking out products like Tenant Inc, the Noke Janus system, which is their keyless lock system that you can open with your cell phone. I think getting products and services like that in place will be perfect for running your facility remotely. The one thing that I always like to point out to people - there's no such thing as a completely unmanned facility. You still need a repairman, maintenance man, or someone like that to come out and take care of the site. Don't overlook those things when you're trying to create a fully remote or man-less platform, because there will be some legwork on the ground at some point.

Ash Patel: John, what is your best real estate investing advice ever?

John Lindsey: Best real estate investing advice ever... I was told this back in 2014 by one of my favorite clients. I've been very fortunate to spend a lot of time with him and do a lot of deals with him. Don't step over dollars to chase pennies. I think that applies to pretty much everything in life.

Ash Patel: John, are you ready for the Best Ever lightning round?

John Lindsey: Hit me. Let's do it.

Ash Patel: Alright, John. What's the Best Ever book you've recently read?

John Lindsey: Outliers by Malcolm Gladwell.

Ash Patel: What was your big takeaway from that?

John Lindsey: I think being unique within your own space and what it takes to be there in the first place.

Ash Patel: John, what's the Best Ever way you'd like to give back?

John Lindsey: The Best Ever way I like to give back is my time. I've served locally in our community a ton. One, in particular is The Caring House here in Durham, North Carolina. We provide affordable housing for people seeking cancer treatment at Duke Hospital.

Ash Patel: John, how can the Best Ever listeners reach out to you?

John Lindsey: Best Ever listeners can reach out to me on WhatsApp or on my cell phone, 919-381-7799. You can also visit my website, lindseyselfstoragegroup.com. I'm also on LinkedIn and Twitter, and accessible 24 hours a day.

Ash Patel: John, thank you so much for spending your time with us today and sharing your story. Being a second-generation self-storage investor, teaching us a few of the high-level tactics of how to be successful, giving some of my multifamily colleague's advice on transitioning. Thank you for your time.

John Lindsey: Thank you. I appreciate it. Thanks so much.

Ash Patel: Best Ever listeners, thank you so much for joining us. If you enjoyed this episode, please leave us a five-star review, and share the podcast with someone who you think can benefit from it. Also, follow subscribe and have a Best Ever day.

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