Commercial Real Estate Tech: Crexi | with Nate Smoyer
This conversation explored how Neighbor.com helps commercial real estate investors unlock hidden value in their properties through self-storage and vehicle parking solutions. It also discussed trends in the storage industry and opportunities to generate new income streams from underutilized spaces in offices, multifamily, and other commercial asset types.
Get commercial real estate coaching, courses, and community to jumpstart your investment journey over at CRE Central: www.crecentral.com
Key Takeaways:
Neighbor.com presents an opportunity for commercial real estate investors to monetize unused or underutilized space in their properties through vehicle and equipment storage. This can provide significant recurring income.
Storage occupancy rates remain high nationally, but some markets like the Sunbelt are leveling off while others like New York and California continue strong growth.
Converting office space directly to residential is challenging and unprofitable in most cases, but converting to self-storage has low capex requirements and high potential returns.
Multifamily and other commercial properties often have 20-30% of interior storage units and parking spaces sitting unused, representing an opportunity to work with Neighbor and increase net operating income.
Neighbor's platform allows operators flexibility through customization and month-to-month rentals while still providing predictable recurring income streams.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
0:00
This episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community, and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com. Welcome back to the commercial real estate investor podcast live with Nate Sawyer, the one and only cre tech guru. That's for sure, Nate, I'm really looking forward to our conversation today. Because as a commercial real estate investor, we're always looking for creative ways to monetize our assets. And you have found a pretty interesting one for us. So why don't you tell us a little bit about our guest today and we're gonna be talking about
0:52
Yeah, this is this is actually something that's a little bit near and dear to my heart. You know, I I own a little bit of self storage up in Wisconsin. But yeah, this this actually goes way back to my childhood. We've got, we've got Joseph Woodbury and I'm going to tell that story in a minute. Joseph Woodbury is co founder and CEO of neighbor.com, which killer domain they've released. Earlier today.
1:19
I was like, how did he How did he pull that one off?
1:24
They've raised more than 65 million from top investors like Andreessen Horowitz, Airbnb, Uber, in so forth. And they've been building a platform to really kind of take Self Storage a little bit beyond the walls as what many of us know it to be. I like what they how they put it up unlocking the hidden value in existing properties. And so I think for creative investors are for people who are just looking for a little bit on the side. Or, you know, as we were talking before the show, like maximizing the use of a property. This is an interesting solution to the market. Yeah,
1:59
I think that's great. Well, Joseph, welcome to the show, man. We're excited to have you on.
2:03
Yeah, thanks for having me.
2:07
All right, I'm gonna kick it off with my story. Because I told Tyler before I was like, I gotta tell the story. And I may have shared this once on my podcast previously, but it starts with when I was a kid, like five or six years old, my grandma mom and her husband, Rhett, they, they totally refurbished a Ford Galaxy. But it was in a garage across town. And I don't know what it was about that. But that lesson stuck with me was like, there's people who want to rent other people's garages. And then when I bought my first house, and 2015, I house hacked it, and I did it because I knew I could rent the garage. And I mean, I've rented that garage, and within a few days, and I've never had a vacancy since. So it's, I don't know what year it is. But it's like, almost 10 years later, and that garage has never been vacant. And so I love what you talk, you know, what I've read about the company, about the unlocking the hidden potential. And the last bit of this is, this was an idea, I sat down with a handful of friends 2017 as like, I was going to start this company, I was going to start renting all the garages in this town where I have my my property was talking about, and then arbitrage in the garage space, because I was like, there's gonna be tons of people. Everyone's gonna read the garages. And I never did it. And thankfully, because it sounds really hard, you guys are
3:28
doing it. So Joseph went out there. Nailed it.
3:30
Yeah, you guys built the whole platform. So let's kick it off right there. First, how did you even spot this opportunity in the market?
3:39
Yeah, very, very similar to you is actually my co founder that had the idea. And he and his wife had needed storage, because they were flying down to South America for four months, right after they got married. And so they needed a place to put their stuff. They looked into getting a storage unit and had the same experience I think most people have where, you know, it's far away across town, they couldn't find any of the ADNI vacancy, so they're gonna have to drive a half hour. And it's expensive. I mean, storage is the single largest subscription payment that a lot of Americans are making. You pay like $10 a month for your Netflix and $30 a month for your internet. There's not that much you're paying 234 $100 a month for, but storage is one of those things. So, you know, being creative. My co founder, he found a friend that let him store in his garage. Fast forward. Four months later, he gets back from South America, it goes to pick his items up. And he just thinks like, why doesn't everyone do this? This was such a better experience. I felt so much more peace of mind having my items in a nice clean garage in a neighborhood I trusted. Plus I saved a ton of money. There's got to be empty space in every neighborhood in the country. Why hasn't someone built a way to find it? You know, why isn't there a directory or a marketplace or some way to locate your neighbors that have storage and that's where the idea was born. are
5:02
very cool. Yeah. And I thought maybe we will take a step back from talking to like the tactics of the platform and the specifics. And maybe let's first approach just like where's the industry at as a whole right now this this State of the Union, if you will, because, you know, it's no secret storage has caught on investors have, they have got the bug. I'm one of those people who bought during COVID. I don't regret it. Thankfully. Decent. But but there's also been a bit of a cooldown in that. So maybe walk us through, like, what's the state of the industry? And then also, because you guys have a little bit of a different model. Where does that leave you in being susceptible to some of those changes?
5:49
Yeah, so you're right. Storage is one of the most fascinating and I'd say most ignored industry out there. It's, it's the fastest growing category within commercial real estate. It's been the fastest growing category for four decades straight now. So huge, huge growth since 1990. It's at a higher CAGR growth rate than the s&p 500 than all US REITs combined. I mean, storage has just been on a tear. We've now built more storage facilities in the US. I just saw that, you know, the status is fascinating to me. We've built more storage facilities in the US than we have McDonald's, Dunkin Donuts, Burger Kings, Starbucks, Wendy's, Walmart's Costco and Home Depot's combined Wow. Storage. You could fit every man, woman and child in the United States in a storage unit comfortably. That's how much we built. And yet, it's full, it's the highest occupancy rate of any real estate class I know of its average is between a 92 and 96% occupancy rate nationwide. I think last year, we were at a 92%. Two years ago, we were at a 95%. So it's full, we need more and the industry. I mean, the industry spends about four to $5 billion a year, just on new construction, every year, four to $5 billion is deployed into new storage facilities. And you look at that occupancy rate. And it's it's been in the 90s for the last decade. And with all that new construction, it just eats it up all that new construction gets filled every year. It's amazing what the storage industry does. Look at some of these public companies, they get better multiples than tech companies do. Public Storage is, you know, got like a 16 or 17x revenue, multiple $55 billion company publicly traded, turning out like, you know, some of these, some of these facilities will do 40 50% net profit margins. So where we fit into that is, you know, the single biggest expense in storage is land, right? Like that is everything, land, it's a location business, the closer you can be to people, the faster you're going to fill up. But because of how full storage facilities are, and because of how over occupied everything is, most investors have largely chosen to build kind of on the outskirts because they know it's gonna get filled anyway. And so it's gotten to be a very poor user experience for the customer, you're often having to drive a far distance to your storage facility, pay high amount. Again, that's a supply demand question. When all your storage facilities are full, guess what the price is do they go up and up and up and they've been going up, they're actually starting to, you mentioned the cooled and they're starting to level off and maybe come down a little bit. But for decades, those prices have been going up. So it's very expensive. And our innovation here is to say, hey, wait a second. There's a lot of space that's been built already. That's actually very high quality storage space. And we don't have to pay the capex to build that. What if we just crowdsource that all together? And we started on the residential side, right renting out garages, driveways, sheds, we grew that to all 50 states. We're the only storage operator in the country that's in all 50 states. And then we moved to the commercial side. And now that's a massive component of our business. We're working with big REITs, nationwide retail REITs, multifamily REITs, office REITs. And we'll take the excess space they have. And I mean, it's meaningfully answer meaningful ancillary revenue, some of these portfolios pull in, you know, seven figures a year in income through our platform.
9:34
Yeah, I mean, the the fascinating thing to me about self storage is, you know, had the lowest delinquency rate going through COVID. Right, which was the biggest stress test that almost any asset type could have ever gone through. And it was well under 1%, which is pretty phenomenal, you know, on the opposite spectrum office is getting absolutely crushed right now, and you guys have a very interesting mapping software, where you can kind of, you know, typing your address, and it helps you figure out, you know, what, what, how you might be able to monetize that? Have y'all come up with something for the office environment? And if not, I mean, what do you see is the potential for your neighbor with existing office spaces that are now vacant?
10:19
Yeah, absolutely. I mean, to your first point, how resilient storage is 2008 recession, you know, most of real estate contracted by somewhere between 40 to 60%. Storage actually grew 5% in 2008. And that's just how mindblowingly stable it is, you know, the feature you were mentioning, we have this really cool satellite feature we call blueprint, where you can pull up any place in the country, and, and pull up an area of land. And we will, we have software tools that will literally just allow you to drop spaces there to monetize, and we'll show you how much you'll earn from each space. And you can customize it, if it's a parking lot, you could have some vehicle storage, you could have some RV storage, you could have some boat storage, and we'll tell you how much you'll learn from each one of them. For office, though, it's it's, that's a relationship business for us, usually an office owner, they have a plan for their office portfolio. So typically, office portfolios, they're getting in contact with our dedicated office team. And they're going through a whole portfolio review and saying, Hey, this office property will work Excellent. This other property won't work as well, here's how much you'll make on an annual basis, from renting out, you know, the basement floor in this office building, here's how much you learned from taking the top three floors in your parking garage and renting those out for vehicle storage. So we kind of create this custom map, and then we onboard all of that for you. So we'll put it into the software. And we'll make it to where it's all laid out. You can see all your different units. And so that you as an office manager, you're just managing the income and you really don't have to do anything else.
12:01
Man, I'm gonna have to talk to your team after we get off this night Gnosis but I own one and a half million square feet of industrial real estate down in Chattanooga. And we bought it because it was cash flowing with 1.2 million square feet of that vacant. So and I was telling him before we went live, I was like, you know, I'm actually planning on doing close to four acres of industrial outdoor storage here, I'm gonna have to check out their blueprint thing and see what it says, you know, I can rent my land for, but it sounds like it should also talk to you about some of the buildings, but it's more of a more of a statement, not a question. I'm going to turn it over to Nate, keep the conversation going.
12:37
Yeah, we'll have to come back with a little bit of a case study, right? This Yeah, three, six months, 12 months out afterwards is? So you know, we kind of kind of jumped around a little bit here. But you guys have different solutions for different types of storage, as you mentioned, because you're in all 50 states. Where's the growth? And what's cooling down? You know, and I think the storage industry kind of like, you know, obviously, there's no one telling everyone what to do. So for awhile, there was this conversion from big units to small units, right, because you get more per square foot. But then everyone bought campers in RVs. And there's nowhere to put the big stuff, you know, so then there was suddenly like, no one could find big storage. But now it's kind of tapered out a little bit. So I'm curious where you're seeing the growth? And also what's tapering down?
13:28
Yeah, that's a great question. So our growth markets, and hands down what we consider to be the most attractive markets are markets like New York, Florida, California, they perform incredibly well. They're growing, where we see, you know, what I'd call leveling off. You get them in markets like Texas, some of the Sunbelt stuff, you know, kind of south southeast, but not so far as Florida. That area. And I know some of the bigger public REITs have published some stuff about the slowdown. But to be totally honest, we haven't really seen it on the platform. And that may be because as people get more price sensitive, they adjust to a platform like ours, where we tend to be a cheaper you know, we're we're typically 2030 40% Cheaper depending on the area. And so as as things get more competitive, we've seen as much storage demand as ever, in fact, in fact, we're, we're way over. We have a lot more demand than we have supply on the platform. We have, you know, millions of renters every year that were just unable to serve us. So there's kind of we feel like there's unlimited demand in this industry. And it's all a supply game. What
14:55
Why do you think the Sunbelt is leveling off? Do you think that that's because it's an over divide? element or is there something else going on? overbuilt?
15:02
Yeah, I think that's where a lot of the development went into. It's also just easier. It's very difficult to, to build a New York, for example. And I think some of these bigger public companies they have seen, they have had a hard time in these markets like New York or even California, whereas we have not because we don't have to build, we're just going in and taking space. So those are some of our fastest growing markets, because we have more unlimited access to supply than they do.
15:34
I could see, I started thinking about Chicago, like downtown Chicago, a number of just empty buildings, not sure what to do with the can convert them to residential, they don't make great parking garages. Do you? Do you prospect for that? Like, do you guys actually go out and look for like, Hey, where are the empty buildings? We could probably send some stuff there, do you have a different approach to how you're onboarding, these commercial and more enterprise level type customers?
16:04
We absolutely do, we have a whole we have a whole team and all they do is outbound, you know, partnership stuff, where we're going and locating these, these individuals. And, you know, I mean, you nailed it on the head. Office to resi gets all the news coverage, right? It's, it's all anyone wants to talk about. It's, it's interesting and sexy. And I've been to a number of conferences over the last year, and there's always a panel on Office to resi. And three out of the four panel members are always like, I've been doing office to resi, the last three years, it sucks, don't do it, you can't make any money, you buy the building for 100 million, you got to put another 100 and 50 million into it, the structural doesn't work, the windows don't work, the plumbing doesn't work, it's cheaper just to tear the dang thing down and rebuild, to do resi, except in very, very limited circumstances, you know, narrowly built office, a very narrow profile, and in a rent market, like downtown New York, where you know, you can command these absolute premiums to make it worth the conversion.
17:11
I picked off the bladder, that's what I'm hearing here.
17:14
No, that's exactly right. Office to recipe is dead, like I'll say that is that you're gonna see, you're gonna see measured in the, you know, dozen properties that get done each year, in the whole United States, you're not going to see hundreds of office to resi conversions. And I think the data is playing that out. Whereas when we're talking with these owner operators, the the, the cost to convert to storage is so minimal. And in many cases, we're taking the space as is no capex, nothing, no change to the space. I mean, you think about a parking garage, you got no one coming into the office, you don't need to do anything different, you could be earning millions of dollars, just but we have a single office property, just one location, just one location in Florida, that is pulled down almost a million dollars earned to that one location, you imagine a larger portfolio where you have dozens of locations or hundreds. And what you can do and and all they're doing at that location is vehicle storage, they're not even doing any sort of interior self storage. So when you combine those two together, the income potential becomes high. The biggest barrier is not the conversion. Even if you do a full Office conversion, the cost is like 1520 bucks a square foot, I mean, it's very cheap. The barrier is not conversion, its willingness, these office portfolio owners, they just can't wrap their head around doing anything else. And they'd rather sit there and like, hope that office comes back and miss the next payment than they would like contemplate some ancillary income. But the ones that are forward thinking and creative, they're going to they're going to add real value there, they're going to hang on to their portfolios through this pretty bad period. And they're going to come out the other side with a lot of ownership that others don't have. Can
19:14
we break that down a little bit further and kind of maybe do a mini case study on that site? Like, I mean, one, you know, how did how did they approach you guys? How did they find you, but how are they monetizing it to a point where they're making a million dollars a year? Is that, you know, a parking garage that they had for their office building that is now unoccupied because there's nobody parking there. And, you know, I mean, like, let's break that down like and what the income opportunity could be for a commercial real estate investor that wants to bring neighbor in to take over and help you know, kind of lease out some of their storage or some of their space for storage.
19:49
Yeah, absolutely. And I should mention that that property I mentioned that sir, you know, earned a seven figures at that property that was over multiple years, right? Sure. Right. That's the advantage of getting in early, you know, these individuals that said they saw COVID. And instead of hesitating, they got in, they've earned a lot of money on our platform. We have a lot of people that we talked to two years ago, that, guess what today, they're really warmed to the idea and they're ready to start. They fall therefore, when the two years of income that they could have had. So here's a great example that I'll give, take a multifamily property. So you own, you know, 2020 multifamily properties across the country? Well, typically multifamily, you've built storage units actually in the property for the tenants, most multifamily building buildings have some sort of either garage, or cage or actual unit for the tenants, those those have very low occupancy rates, often 25 30%. So the first thing we'll do with the multifamily property is we'll take all those interior storage units that are already built, will rent them out on our platform, we'll get them to 90% occupancy. The second piece is you often had the city tell you, you got to build so many parking stalls per unit or whatever, you know, they they have their city requirements, and you often don't use all those spaces. So the tenants have their spaces that they use, we take all the extra stuff. And we rent it out to the community for vehicle storage, both storage, RV storage, that sort of thing, you can actually stipulate on our platform as an owner, why you're willing to accept in those spaces. And all of a sudden, you're earning a meaningful amount more to that debt, multifamily property, and the impact because that's all net, that's all noi, and that doesn't come with an associated cost. And so that goes straight to your bottom line, all of a sudden, that does pretty strong things to your IRR, you're able to go to your investors and say, Look, we will look really good, you don't even have to tell them its neighbor, you can just pretend like you're a really good operator, and you're just better than the other operators. Because he has a little noi down to the bottom line goes a long way. When you're at parity with all the other it's really hard to beat everyone else out on rent, you can do your annual rent increases, but it's a pretty efficient market. Right? You're kind of going to get what other people get. So a little extra noi to the bottom line makes you look kind of like a genius.
22:28
Yeah, and just Just a quick comment to that we surveyed urban multifamily apartment units was probably two or three years ago, it was 10 or 12 properties to see how much of their parking they're actually using, because we were working on a site where it didn't have any parking requirements. And so we wanted to kind of figure out what is the actual balance, we have to hit the majority of apartments. I think the average was 80% of the parking spaces were actually utilized. And some of them were less than that. It was crazy. Because I mean, we're talking about, you know, 200 parking spaces, right, and 40 of them are not getting used. I mean, that's an insane amount of parking that's just sitting there on monetized. So I think you know, you're you're absolutely right with hitting the nail on the head on these urban multifamily apartment units. If if some people that are working downtown or whatever, can start renting out those spaces. It's easy money.
23:24
I've just got all the empty malls across America
23:30
as a couple of those.
23:32
Well, yeah, I mean, we worked, we we've now hit on it in a span of about 10 minutes, we've hit on office, we've hit on multifamily, and then you just brought up malls retail. Like we have a space problem in the US like we just do. We don't have a we have enough space. We just it's very difficult due to, you know, the way things are situated in the way things were built, it's very difficult to change use just not allocated well, and I think traditionally portfolio operators. They were very asset driven, right. Like if I'm a retail operator, I'm a retail operator. And what I do is retail and I get really good at retail. And I'm not willing to consider anything else outside of that. And if I'm office, I do office and I don't I don't think about anything else is a waste of my time. Right? Anything else is just a distraction from the goal. Same with multifamily. You get some portfolios like a big pension fund or insurance where they own across all asset classes. But I think the operators that are starting to win are those that don't view themselves as an asset class operator. They view themselves as I own space, and I earn money from the space, whole property utilization. Right and I don't care where that money comes from. I want to earn the most amount of money possible from my space. And that sort of mentality opens you up Saul's sort of all sorts of possibilities and creativity. And look neighbors, not the only option there, right? We're the only option for storage. So if you want to take a storage locker or parking space and rent it out for vehicle storage, like, that's where neighbor comes in, but I think you're I mean, you mentioned industrial, you look at some of the operators that that jumped on the the solar thing early, they put that out, they not only netted out the cost of running their warehouse, but in some cases, they're contributing back to the grid, you know, through these net metering programs and actually getting paid out for their their generation activities in states where that's allowed. There's lots of opportunities for space monetization and utilization, but you need an operator that thinks that way and just wants to maximize noi.
25:49
All right, playing devil's advocate here. Let's say I've got a I've got some, I've got a few extra garages on my commercial property. And I'm like, Man, this sounds cool. I'd love to add some some dollars to the bottom line. But I don't want to deal with people pulling in their RVs. or talking to folks who want to be here for two weeks or two months out of the year. What's the what's the objection handler to those naysayers?
26:16
Well, the first thing is you shouldn't do anything you don't want to write. When we when we're working with a big portfolio to on board. One of the first questions we ask them is, what do you want to allow. And, of course, the more you allow, the faster you're going to book, the more you're going to earn that sort of thing. But we have some partners we work with where part of their success as an operator is, is the brand and the strictness that they carry, right. And so it's our job to protect that. And so in those cases, we'll be highly restrictive. And we'll lay out a set of rules for what's what's allowed to be stored on their platform. And we screen all of that upfront, so that you only ever get the type of renter's like, if you don't want our views on your property, you'll never get an RV on your property through our platform, you can isolate it down to vehicles. to your second question about duration. So, storage, that's another beauty, you get all these parking companies, they're like, let us manage your parking. Well, we're vehicle storage. So when you're talking storage, I mean, yes, you'll get someone that may stay three months, but the vast majority are going to stay six months, 12 months, 18 months, 24 months, I mean, they're putting this year for a long term use. And, and it's a very predictable person that you can just collect recurring income from every month, that's the same amount every month, it's really easy to build into your financial statements. And you get the recurring nature, just like you're used to with lease rents, except the differences with lease rents, you're stuck in those lease rents. But with our model, it's all month to month. So if you ever do come across a higher and better use for that space, you can just turn it off with 30 days notice, you can turn off our platform, which we love to tell people because they always think you know, office is going to come back and I'm going to have a better use for that ground floor. Or you know, people are going to start using in those third, the third floor, my parking garage is going to be full. And we're like, Yeah, well, when it does turn it off. And guess what it never does. So it's great for us great for the renters, but it gives you flexibility as well. And that adds a lot of peace of mind to an operator. So like the short answer is we can customize it to the operator to bring them exactly what who they want what they want. Again, we've got way more demand than we have supply. So you can be fairly picky.
28:48
Joseph, this has been a phenomenal conversation, man really diving into this. I think it's fascinating. And it seems like a phenomenal way for commercial real estate investors to monetize their properties in you know, other and new ways. I mean, I'm going to be looking into it. So I think everybody else should as well. But Joseph, if anybody listening to the podcast or watching the show wants to reach out and start exploring, aside from neighbor.com Is there anywhere else that you go?
29:16
Yeah, neighbor.com is great. If you have a small business you're signing up or a residential property, you should just go to neighbor.com you can list in about 10 minutes. If you have a larger portfolio, you know, 1020 properties or more, or you're a large REIT, you know, to 300 properties nationwide. Then you should reach out to our partnerships team. You can either email our head of commercial partnerships sky@neighbor.com, Sky e neighbor.com, you can email me directly and I'll get you to the right person. joseph@naver.com and we try to make it as easy as possible.
29:56
Easy enough. Joseph, thanks for joining us, man. We appreciate it and we will see you guys In the next one, you guys, this episode of the commercial real estate investor podcast is brought to you by cre launch Pro. This online commercial real estate program is designed to take you from beginner to pro commercial real estate investor with access to all of my courses, our online community and monthly group coaching calls. Learn how to confidently buy your first commercial property today at www dot c r e launch pro.com
Each week, I'm going live at 8:30am CST for my "office hours" to answer your questions about commercial real estate on the show. Let's hear what you'd like to know when it comes to brokerage, investment, and development!