Data-Driven Self Storage Strategy With Drew Dolan | S3SP3
In this third special episode of the A.CRE Audio Series, Sam and Spencer discuss the niche asset class of self-storage real estate with special guest, Drew Dolan. Drew is the Principal & Fund Manager at DXD Capital, which offers a unique perspective as a data-driven self-storage development company. As multiple industries lean more heavily on enormous amounts of data, including the CRE industry, learn how Drew and DXD leverage this resource to identify the right opportunities and develop properties with positive outcomes.
As Season 3 of the Audio Series has focused on multiple aspects of creating and executing successful CRE deals, we appreciate the opportunity to speak with industry experts like Drew who bring rich experience and insight to the deal process. In this episode you will learn about how Drew and his team at DXD use data creatively to source investment opportunites, how they consider risk to protect for the potential downside of deals, the influence of digital marketing on trends in the industry, and multiple other nuances that impact performance in this niche property type! Watch, listen, or read below to hear Drew and DXD’s unique approach to self-storage investment strategy.
Data-Driven Self Storage Strategy With Drew Dolan
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Resources from this Episode
- A.CRE Real Estate Financial Modeling Career Accelerator
- CRE Career Advice
- Education in Real Estate
- A.CRE Self Storage Development Model
Episode Transcript
Announcer (00:01):
Welcome to the Adventures in CRE Audio Series. Join Michael Belasco and Spencer Burton, as they pull back the curtain on everything commercial real estate and introduce you to some of the top minds in the industry. If you want to take your skills to the next level and be part of a growing community of CRE professionals across the world, this is for you.
Sam (00:26):
Here we go. Another episode. Another episode on the end of season three. We’re really excited to be here today with Drew Donal with DxD Capital. Did I get that right?
Drew Dolan (00:36):
Yes, you did.
Sam (00:37):
Awesome. We are really excited to have you. Mostly, because like I was talking about before we started the podcast, season three was a game changer for us. In our minds, we just loved the content so much in season three. Deal making, deal doing.
Sam (00:53):
You have a specialty, a niche, that I think a broad section of our audience is going to really be interested in. Your approach is really cool too. Before we have Spencer and myself pepper you with questions … Maybe you could just do a quick little introduction about you and about DxD Capital?
Drew Dolan (01:13):
Great. Thanks, Sam. Thanks, Spencer. Drew Donal. I’m the fund manager at DxD Capital. I’ve been in construction of real estate for 20 years. 15 of those years has been all ground-up development. Pretty broad background. Started with office. Migrated to multifamily, senior living, industrial, and then self-storage.
Drew Dolan (01:41):
I’ve been in self-storage for about five years. And the last five of the 20 years, I’ve been managing private equity funds with this background of a developer. Having been there, done that ground-up. All the gray area of real estate development really has helped me, as we pursue this data-driven strategy for self-storage development.
Sam (02:06):
Well, that’s cool. Data-driven. That is the name of the game. We’re seeing an evolution right now, everywhere across the spectrum. Spencer’s case study of this … Spencer and his company. Do you want to start the conversation there? How are you guys using data?
Spencer Burton (02:22):
Yeah.
Sam (02:22):
That’s a big part of your company it seems like. How are you using it? What’s the strategy there?
Drew Dolan (02:29):
Let me give you a little background on why I think it’s so applicable for self-storage. Self-storage is a complete commodity product. When a user is thinking about putting their stuff in self-storage, the thought process they go through is … How close is it to my house? What’s the price of the unit? Is that unit available?
Drew Dolan (02:51):
Once they get through that decision matrix tree, they really don’t care whether it says Extra Space or Public Storage. They care if it’s secure and safe and the female wants to go there, but they really don’t care whose name is on the brand. And so, that’s really where data can drive decisions at a much higher level than maybe some other product. Because of this idea of that commodity.
Drew Dolan (03:20):
What’s so cool about storage is you can stack up all these data layers. What’s the existing supply base? What are the prices? How many new homes? How many new single family homes? How many cars are going past that property a day? And then, what are the median household incomes or population? Just all these data.
Drew Dolan (03:43):
You can use all that data to sort through and decide where you should be investing. Our strategy at the moment is all ground-up development, because that’s really where our data gives us the best advantage. Really, what it does for us is it saves time.
Drew Dolan (04:00):
Instead of looking at 100 sites and saying 10 of those sites would work, we look at 100 sites knowing that our data has already presorted those 100 sites and all 100 of them could work. And then, we just need to find the details within that, that says we should pursue this one or we should not to pursue that one.
Spencer Burton (04:21):
That’s really interesting. Using data in a way that allows you to filter more efficiently … I think that it’s certainly the direction that the industry is going. In my experiences, I have implemented data into my current venture.
Spencer Burton (04:37):
Oftentimes, still the population set that comes out of that data is still expansive. How do you filter further without missing out on good opportunities? But at the same time, using the data to really filter down?
Spencer Burton (05:00):
Am I describing the conundrum well? Oftentimes, data will present a basket of opportunities that still is in excess of perhaps the volume that your firm can do. Right? You can’t do all 100 of those self-storage deals. I guess the point is … How do you filter then further from that? How much is data in involved in that? How much are other factors?
Drew Dolan (05:24):
It’s a great question. I think part of it is prioritizing what data sets are the most valuable. For us, it starts with rates. Where are rates the highest, relative to what it costs to build and what it costs to operate? If that’s the most important, you start from where rates are.
Drew Dolan (05:45):
And then, you look at what other new supply is coming on? And then, you look at … What other existing supply can you outperform? Are you going to have a better advantage against the existing product? And then, once you’re checking all those boxes, you’re getting down to maybe the last data set, which is how does your operator underwrite the performance of that asset? And all of a sudden, did you underperform or think it would overperform?
Drew Dolan (06:18):
And so, back to your question. There’s enormous amounts of data. I will also say, data is a piece of real estate. We know that data doesn’t get the building built. Data doesn’t necessarily close your loan. Data doesn’t necessarily help from an operating standpoint. It really just provides a strategic advantage that lets you spend your time, investors’ money, and your money where you think it has the best opportunity to make a better return.
Spencer Burton (06:49):
I spent the first decade of my career on the development side. And in my current role, we’re using data in more of an acquisition sort of posture. I think of development and I think of successful developments. Part of it is identifying the right investment.
Spencer Burton (07:07):
What I’m hearing from you, as it relates to, “Let’s find locations with optimal rates relative to cost to build. Let’s find places where there’s a supply-demand imbalance. Let’s ensure that the returns in that investment meet some threshold.”
Spencer Burton (07:24):
But once you get past that, are there opportunities in the development process itself? Once you’ve selected an asset, either in entitlement or in construction or in lease-up … Can you use data in any sort of actionable way beyond the investment selection? And if so, how?
Drew Dolan (07:43):
I’ll take your question another way. There are tools available for developers, for any business that create a process that creates efficiency beyond what I had 10 years ago or maybe what you had 10 years ago. A way to monitor progress. A way to create closed-in loop systems that help you be more efficient. And I’ll give an example.
Drew Dolan (08:12):
Wrike is a software tool that’s just process-oriented. It allows team members to communicate. It makes sure that you check all the boxes. And it sounds overwhelming to think about putting the whole development process, all the steps in one area. But once you start doing it … Every development’s different. There’s no really repeat of development, because there’s a nuance with a municipality or construction or what your unit mix is.
Drew Dolan (08:48):
But what we’re trying to do is create a closed-in loop process that really prevents mistakes. I think a developer … What we do is risk. It’s a risky business, because we could do everything right. Right debt, right site, right product, right operation. And then, something happens that’s outside of our control that completely crushes the project. But what we’re trying to do as developers, is just make sure that we mitigate risk as much as possible.
Drew Dolan (09:18):
That might be low loan to cost. Or having a great equity source. Or building in a bigger market. Or having the best operator. Set another way, we’re just trying to manage all of this enormous amount of risk that make us … What we say a lot is if you protect for the downside, the upside usually always takes care of itself.
Drew Dolan (09:42):
Because if you think about everything’s going to go wrong, and you have a strategy to mitigate that … Most of the time in real estate, if you do the right things, time will solve a lot of problems in this business.
Spencer Burton (09:56):
That’s interesting. I imagine you have some metrics internally that help you assess risk to understand what your downside potential is. Are there any specific metrics that you could share with our audience? Adventures in CRE is very much a real estate financial modeling-focused audience.
Spencer Burton (10:13):
And so, I’m sure many of our listeners would be interested to hear. How do you measure risk? How do you understand your downside in order so that you can either mitigate risk through outsize upside potential or maybe through some other mechanism?
Drew Dolan (10:29):
A lot of what we do is we underwrite a deal to … This is a real challenge, I think. The idea of not falling in love with a deal. Not falling in love with real estate. Having enough eyes on it, being realistic with what the performance is going to be.
Drew Dolan (10:49):
Once you do that, and you’ve got this baseline of how a deal will perform, it’s creating these enormous complicated sensitivity analyses around that. What happens if rates go down 10 percent? These are all in our world. What happens if the lease-up is 20% slower than you thought? What happens if interest rates go up? When I said rates before, it’s the rates of …
Spencer Burton (11:13):
Rental rates.
Drew Dolan (11:14):
Your leasing. Right? And so, looking at all those things … The other way I think about it is, “How many things have to go wrong before this deal is a loser?” It’s a little like flying a plane. If you’re a private pilot, and you have one thing that goes wrong, you can usually solve it. What starts to become a problem for pilots is when two, three, four things go wrong at a time.
Drew Dolan (11:39):
Some of those things you can mitigate. It’s your control whether you have enough gas to make it to the next stop. It’s your control. Did you fly into bad weather? Are you skilled enough to be flying that plane? And so, to remove those things you can control and to be able to focus on the things you can’t control. To understand how many things can go wrong before we have a problem.
Spencer Burton (12:04):
I like that. We have a training program where we train in real estate financial modeling, and we teach this idea of multi-variable scenario analysis. And that’s what I’m hearing from you. If you’re only sensitizing, say, NOI … Or in the context you described, a decrease in rental rates. Because I recognize there’s an OPEX side of that as well.
Spencer Burton (12:22):
But if you’re only sensitizing rental rates or NOI, you might be missing cap rate compression or expansion. We haven’t heard that in a while. But at some point in time, we’ll have some cap rate expansion, you’d imagine. If you’re only sensitizing one variable, you might miss something.
Spencer Burton (12:42):
And that’s a great point. Oftentimes, one variable … Variables aren’t independent. A decrease in rental rates may be coupled with some expansion in cap rates as demand wanes in the larger economy. The point is well-taken and I like to hear that.
Spencer Burton (13:04):
Let’s get into the weeds a little bit more, if we could, about DxD Capital and what you guys are doing. You’re taking a data-driven approach. Really exciting. Are there markets that your data is taking you to more often? Either states or specific geographies that you see outsize demand in the coming years. And that imbalance between either supply and demand or rates and costs that you can share with us. You don’t have to give away any of your secret sauce.
Drew Dolan (13:35):
No. The way I’ll answer that is, self-storage is a submarket by submarket business. It’s for the most part a 10 to 15 minute drive time, which equates to a three-mile radius. Denver, which was one of the most overbuilt storage markets the last cycle. Even when it was completely overbuilt, there’s still a fantastic site in Denver. Because that three mile … Typically, that fantastic site was real expensive or very hard to get entitled.
Drew Dolan (14:08):
And so, what we did see through COVID is an enormous uptick in demand for self-storage. What’s interesting about it is, because self-storage… The REITs, which manage about 10,000 of the 50,000 … That’s the metrics we track, because they’re easily trackable, because they’re public markets. There are 30-day leases. They’re month to month. And so, as we saw demand go up, the REITs are pre-programmed to raise rates.
Drew Dolan (14:42):
It’s not dissimilar to airline ticket pricing, where if it’s the last flight from New York city to Las Vegas on New Year’s Eve, that’s going to be a $900 ticket. Whereas the average might be $300 for the entire plane. Self-storage is the same. If it’s the last ground floor 10×10 in a three-mile, it’s going to be really expensive. And so, you really see what demand is doing if you follow the rates. Storage did really well.
Drew Dolan (15:11):
We get asked this question a lot. “Why? Why did it do well?” And there’s a host of a lot of reasons, but people moved out of bedrooms for home offices. Bedroom furniture. They didn’t want to sell or give it away. They needed to put it somewhere for a home gym. They remodeled, they moved, they upsized, they downsized, they moved in with parents.
Drew Dolan (15:32):
And so, storage does well in disruption. There’s always disruption. A death, or a divorce, or a dislocation. A new job. Of course, COVID provided that disruption at a scale and a magnitude that I hope we never see again. It was the most disrupting time in … My father-in-law is 80 and he’s like, “This is the most disruption I’ve ever witnessed.”
Spencer Burton (15:57):
Wow.
Drew Dolan (15:57):
And so, a lot of the oversupply in storage that existed did get sucked up. And so, I think we’re in the next wave of the next bull cycle in storage. To be very honest, storage has an interesting Achilles’ heel that other real estate products and assets have too, is that it can get oversupplied. When it gets oversupplied, that means prices really decrease and foremost don’t look the way they should.
Drew Dolan (16:29):
And it’s back to my comment about, if you do everything right, but yet something happens that you can’t control … Are you protected? And I want to add just one other little bit. As you’re putting together a deal, who is your debt source? Is it a relationship? Do they believe in you? Are they patient enough to work through your issues? Same thing for your equity.
Drew Dolan (16:54):
What happened this recession, which was completely different from the Great Financial Crisis, was there was no pressure from any banks on developers. Because there was no pressure from the fed. Versus GFC, incredible pressure from the fed to the banks. That’s when the massive disruption happened, because liquidity dried up and options really became less and less.
Drew Dolan (17:22):
But I think this business, and I’m sure you guys and your audience know, it’s like everything else. It’s a relationship business. And it is about the relationships you have with your partners. Whether it’s your contractor or your architect or your bank or your equity, all that stuff matters. And those are the easy things. Do those well.
Spencer Burton (17:47):
There’s a lot to unpack there. Let me come back to demand drivers. This is really interesting to me. Especially as it relates to data. In fact, before I say that, there’s this interesting example that I like to use as it relates to the power of data … How a firm can really set itself apart when it identifies and sources data that gives it intel that the market maybe doesn’t have.
Spencer Burton (18:14):
That is … It actually comes from this idea of, when you do a site visit, say to buy an office building. There’s the traditional things you can look at. What’s the occupancy? What’s the condition of the building? What’s what’s the location of the building? What’s the ingress, egress?
Spencer Burton (18:37):
But one interesting data point is, if you look at the corner of the elevator. This is silly sounding, but you look at the corner of the elevator, and you look at how clean the corners of the elevator are. That will tell you as much as many of the other things.
Spencer Burton (18:56):
Imagine there … Let’s assume that the cleanliness of the corner of the elevator is an indicator of the health of the building. The likelihood that tenants will renew or the quality of your management … Just the health of the corner of that elevator. Furthermore, imagine if you could know the health, or the cleanliness I should say, of the corner of every elevator of every office building in the country. How powerful that data set would be in then making decisions around which office buildings to buy or to sell.
Spencer Burton (19:34):
Now, a silly example, but the point of that is there are certain data sets that maybe in real estate we haven’t adopted. We all have adopted population and income and vacancy and rental rates, but there may be data points that we haven’t adopted. And so, you mentioned something around demand that really made me start thinking. You said that death, divorce, dislocation are main drivers of self-storage demand.
Spencer Burton (20:04):
Have you found data sets outside the norm that speak to … In the same way that if you could find a data set around the cleanliness of an elevator in every office building across the country … That speak to those demand drivers? Death, divorce, dislocation. Or if you haven’t, are there data sets that you’re pursuing that you think would give you that extra intel?
Drew Dolan (20:34):
I’ll give you a couple examples that weren’t available five years ago. One is, there was this idea in self-storage during the life cycle that location and visibility didn’t matter. And that SEO would drive your customers. You could put it on a piece of dirt that was tucked back behind a shopping mall. That dirt was probably cheaper than the dirt that had the frontage. Your pro forma looked good, because your rates are going to be the same, but you just had to pay less for dirt.
Drew Dolan (21:08):
What we did find was that 60% of people … If you ask them why they choose that self-storage facility, it was because they either drove by it or it was word of mouth. 60%. It wasn’t because they Googled it. We found out that SEO, it was becoming more and more expensive as Google kept raising its prices. And it had become less important. We went this full circle of visibility mattered, to visibility didn’t matter, to visibility did matter.
Drew Dolan (21:41):
And so, it’s a really long story of the way we’ve started tracking it as, “How many car are driving past that site every day?” So if we’ve got two equal sites, and this site has 10,000 more cars than this site does, and we know 60% of the people in one sense or another look and like to see it … That site’s going to win hands down.
Drew Dolan (22:05):
Another really interesting dataset that we’ve been using is to be able to geofence a competitive facility and start drawing conclusions about where those people live and what they do and where they’re coming from. And so, what we have the ability to do now is to say, “Okay. Here’s a competitive facility quality-wise that looks like what we would build. We want to know more about that customer base.”
Drew Dolan (22:33):
You can geofence it, and find out exactly where they live and where they’re coming from and what’s their traffic pattern. Maybe you find out they’re all from this certain area that is beyond three miles. But it’s because they want this facility … Maybe it’s on their way to their kid’s school or it’s near grocery or those things. And so …
Spencer Burton (22:53):
Or the only option.
Drew Dolan (22:54):
Or the only option. Part of it is, you got to draw conclusions with data too. It doesn’t necessarily tell you black or white. It’s going to give you a shade of gray. And then, it’s up to you or us or the team to decide what that data means.
Spencer Burton (23:13):
I like that. I like that a lot. You mentioned … I guess car vehicle traffic is a driver? Or at least an indicator of demand. You talked about SEO, but really we’re talking digital marketing.
Spencer Burton (23:35):
How much does digital marketing play in the lease-up stage today versus 10 years ago, five years ago? You talked about the cycle. Is it going out of favor now? Or are you finding that it’s less effective? What’s the part that digital marketing plays right now?
Drew Dolan (23:55):
Well, I’ll tell you how far the storage industry has come in 20 years, where all storage was a storage place or AAA or AAA-A. It was all Yellow Pages driven. Because that’s where we went and looked. And so, that doesn’t happen now.
Drew Dolan (24:16):
You still can go all the way across your city and find AAA storage for that very reason. But that’s just an example of how far marketing has come in that business, and so many other businesses have been completely disrupted …
Spencer Burton (24:28):
By the way, many of our listeners don’t understand the reason why so many companies are called AAA. Because many of our traditional listeners are more younger. Many are in college or graduate school.
Spencer Burton (24:42):
They don’t realize that AAA was because it puts them at the front of the phone book. You name your company with the AAA in the front of it, and you’re one of the first companies in the list. Nowadays, it doesn’t make any sense. Anyway, a little sidebar.
Drew Dolan (24:54):
I’m glad you explained that Spencer.
Spencer Burton (24:57):
Because to us, it’s … That’s why there’s so many AAAS out there.
Drew Dolan (25:01):
Us Gen X-ers lived with the Yellow Pages to find everything.
Spencer Burton (25:04):
That’s right.
Drew Dolan (25:06):
But SEO, it will … You absolutely have to be in the game. And it’s a critical part whether … There’s obviously lots of tricks that can get you to the top. We work with one of the public REITs to be our operator for extra space or public storage. The benefit we get is we get to ride their brand. One of our facilities will look exactly like any other Public Storage owned facility that they built brand new.
Drew Dolan (25:37):
Nobody will know whether it’s Public Storage or it’s owned by us. In one sense, we get the best of both worlds in that we own it. We own the real estate, but we get leverage those brands. I heard something really interesting from Public Storage. They’re by far the biggest REIT.
Spencer Burton (25:53):
Yep.
Drew Dolan (25:55):
A lot of people … This happens all the time. We’ll be in a meeting and somebody is trying to say, “self storage,” and they say, “Public Storage.” Which is equivalent to saying Xerox for a copy or Kleenex for a tissue. Right?
Spencer Burton (26:09):
Sure.
Drew Dolan (26:10):
And so, Public Storage is pretty interesting. It gets to ride this brand, that they’re well-known. A lot of people just type in, “public storage,” not knowing that they’re actually typing in a company. They’re really just looking for storage. And so, I think that storage is really interesting in that, of the 52,000 facilities across the country, 75% are still mom and pop or smaller to mid-size regional or local operators.
Drew Dolan (26:39):
It’s an industry that’s just on the cusp of institutionalization. When I think about that, it’s the kind of capital that’s starting to approach the industry. Like a Blackstone and a KKR. Whereas, they were not interested in the industry before, but here we got the third recession in a row where storage did really well. It’s got this recession-resilient aspect to it … But again, back to my point. It can get overbuilt. You got to be wary of that. I don’t know if I answered your question, Spencer.
Spencer Burton (27:16):
No, that’s fine. Few others understand DXT better. Would you call yourself a merchant developer? Are you building to hold? What is your, call it, investment life cycle? Your investment horizon? That actually speaks to the debt and equity piece that you talked about first. First, what’s your typical hold period?
Drew Dolan (27:43):
It’s about seven years. And the way …
Spencer Burton (27:45):
Okay so, you’re building to hold?
Drew Dolan (27:46):
Yeah. The way to think about that, it’s about a 12-month construction. And then, about 30 months to lease it up and to get rents to market. In self-storage…
Spencer Burton (27:58):
Are you using construction perm debt to do that? Or do you have a construction facility that’s then taken out by permanent debt?
Drew Dolan (28:05):
Yep, exactly. It’s a construction loan from a bank that then we roll into some kind of mini-perm. Yep.
Spencer Burton (28:12):
And your equity tends to stay with you for the full seven years?
Drew Dolan (28:15):
Yeah. Because that’s the way that we structured our fund. My career and history has all been merchant build. What we mean by that is, you build it and you sell it as soon as you can, because you’re trying to drive IRR. And the GP, the sponsor, only gets paid when they sells typically in that structure. What I found … Why that doesn’t work really well in storage is because it does take a long time to lease up. And that, in this industry, if you want to lease up faster, there’s one lever that you as an operator can pull.
Drew Dolan (28:55):
You can spend a couple more bucks on marketing, but it might not produce those results. It’s really price. Price drives how fast you lease up. But what happens with, “You’re given a 30% discount the day you open,” is it’s going to take you time to get all those rents up to market. You’ve got a thousand units to a thousand different customers. When you can raise rents every 30 days, because they’re month-to-month rents, storage has this very unique ability to track inflation.
Drew Dolan (29:27):
It’s back to my earlier point of, “You can tell the health of a market by what rates are doing.” Because it’s very, very dynamic. And so, what I didn’t love about the merchant build strategy for storage is … We, as the GP or the sponsor, didn’t want to be incentivized to sell as quick as we could if we were leaving cash on the table. And so, we know we’re in an IRR-driven world, but I think more of our investors.
Drew Dolan (29:55):
We care as much about equity multiplier than we do IRR. The idea behind our fund was, “Let’s make it an IRR-driven fund, but let’s give everybody their money back as soon as we can.” Meaning that the IRR has been satisfied. They’ve got their money back, we’ve got them a good pref, but now we’re looking for this ultimate exit. We’re really more focused on multiplier than we are IRR.
Drew Dolan (30:21):
And so, back to our strategy. Build it up, lease it, put mini-perm debt on it. Pull our equity out of it, but yet we still own it. We’re still creating cash flow. And then, we’re looking for some kind of portfolio or whole asset sale, that we’ve got a lot of flexibility on the timing of when that execution happens.
Spencer Burton (30:45):
Are you out in a raise right now for a fund? Or are you fully subscribed in the execution phase?
Drew Dolan (30:54):
We hit our target. We’re just wrapping up like in the next 30 days.
Spencer Burton (30:59):
Excellent. Congrats.
Drew Dolan (31:00):
Just looking at the final bit of it. It was a 50 million dollar fund. It was less about the number and more of, “Let’s go do 10 deals.”
Spencer Burton (31:07):
Sure.
Drew Dolan (31:08):
Let’s go do 10 great deals. Build this platform out. We’re always evolving in terms of how we collect data and how we use that data. And so, we’re building the machine that’s just capable of always improving and always getting more information and data that allows us … It’s about efficiency. Time and efficiency. All of us are trying to spend our time where we can maximize. And I think that’s really how DxD uses that to its benefit.
Spencer Burton (31:39):
Well, it’s great talking to you, Drew. This is fascinating. Self-storage is a sub-property type, a niche property type where data can especially lead to positive outcomes. Excellent to hear your take on it. Sam, turn it back over to you.
Sam (31:59):
It’s funny. I listened a lot more than I talked in this episode. Because I was just like, “Okay. Well, this is a really …” The reason for that was is because the two of you are in effect doing something very similar. Spencer uses a ton of data in his company, and you too, Drew. So I was really interested to hear the nuance and the ways that you’re using it. I think the listeners will be of course too.
Sam (32:27):
It’s interesting to see what five, ten, fifteen years down the road is going to look like for real estate. Every single section and subsection of real estate is getting impacted by how data is used. It’s really quite good. I was thinking. One of the things … I’ll say this, and then we’ll end here. If we go back to the digital marketing side. Because that’s my strength. That’s what I do.
Spencer Burton (32:54):
I knew you were going to bring this up.
Sam (32:57):
Well, I’m just thinking. Did you say 30 months? Three-zero?
Drew Dolan (33:00):
Yes. Three-zero.
Sam (33:02):
And that’s filling up what amount of space, generally?
Drew Dolan (33:06):
It’s going from zero to about 90%. Now, it could be 18%. It could be 36%. I think this is back to the magic of how you underwrite. One thing I will say is, as developers, we’re all optimists. Developers have one thing in common. They’re optimists.
Spencer Burton (33:26):
Yeah.
Drew Dolan (33:26):
Of course, we wouldn’t do this crazy shit if we weren’t optimists.
Spencer Burton (33:31):
That’s right.
Sam (33:31):
That’s right.
Drew Dolan (33:31):
But it’s about tempering that optimism. Bringing some realism and having people on your team or partners or associates that create that realism for you. That just makes us more and more successful.
Sam (33:48):
I want to, in my mind, understand what you guys are doing as far as your traffic strategy. Because you have an actual legitimate … Meaning people driving past the property. That’s a traffic strategy with cars. Actual traffic.
Drew Dolan (34:03):
Yup.
Sam (34:04):
But then, you were talking about geofencing. I’m guessing that’s from cellular providers, the way you’re talking about it. Is that right?
Drew Dolan (34:10):
Yep.
Sam (34:12):
Are you doing anything on direct response? You said SEO, so that’s organic. You’re piggybacking off of the REITs. That’s great. What about like direct response like social media marketing? Your Facebooks, your Instagrams, that type of marketing. You doing anything with that?
Drew Dolan (34:30):
The REITs are. They’ve got really cuddly, soft commercials of people moving and it makes it sound easy and simple. It goes back to the commodity of the product. It’s harder and harder to sell a commodity that, frankly, a lot of people don’t want to use.
Sam (34:52):
Yours truly. Yep. Me.
Drew Dolan (34:53):
Self-storage isn’t something that my son grows up one day and says, “Man, I can’t wait to rent my first self storage unit.” Usually, you’re renting a soft storage unit because you got too much junk.
Spencer Burton (35:05):
Yes. That’s right.
Drew Dolan (35:07):
Or somebody … Your mother moved into assisted living. It’s to try to make it as easy and simple.
Sam (35:14):
Well, in my mind, I’m thinking … It sounds like you’re using geofencing. Social media marketing. If you’re a mom and a pop, one of the things you can do to be acquired by a company like Drew’s … Drew, you’re a development strategy.
Sam (35:28):
But there’s other people who have self-storage strategies. And the advantage that the mom and the pop have … Did you say they were 70% of the market?
Drew Dolan (35:36):
About 75%.
Sam (35:38):
If you’re a mom and a pop and you’re listening to this, and you’re thinking, “Well, DxD capital. I’m no DxD capital. I can’t compete with those guys.” The opportunity that some of these platforms right now … Even though some of them seem expensive, they were built for the small business. You can target a three-mile radius around your location.
Drew Dolan (35:59):
Yep.
Sam (35:59):
With the right advertising, man, you might be able to cut that 30 months down to 20. I’m interested to … And the marketing strategy has got to be a big part of the pro forma when you’re underwriting the deal. Right?
Drew Dolan (36:17):
It is. Really, it comes down to how fast you can lease it up and what rates you get. That’s what impacts the pro forma. And if you could spend some more bucks on marketing, which actually I do believe in … I do believe that a succinct, effective marketing strategy can drive more rates, can drive a faster lease-up, and can ultimately drive an IRR.
Drew Dolan (36:38):
You’re right. There are lots of tools for mom and pops and small and regional operators. They can look and compete more like the big guys than they ever have. And so, it’s an enormous advantage that they have now, that they probably didn’t have 10 or 15 years ago.
Sam (36:57):
That’s right. Well, I thought I’d throw in a little bit of tidbit there. Because I was thinking, “Let me see if I can draw that out a little bit.” But this has been really fun, Drew. Amazing content. Really appreciate you being so transparent.
Sam (37:12):
I think the audience will really enjoy this. Because, again, you’ve been so forthright with what you guys are doing. Wish you all the best. People reaching out and wanting to find and learn more about you and your company?
Drew Dolan (37:24):
Go to dxd.capital. That’s our website. This is a relationship business. There’s always something to learn from other people. And if ever I can help anybody or if somebody wants to chat, I’m always open. It’s my pleasure.
Sam (37:43):
Fantastic. All right. Drew, thank you so much. It’s been awesome. We’ll see you everybody on the next podcast.
Drew Dolan (37:51):
Hey, thanks guys.
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