The AAA Storage Podcast

Welcome to the AAA storage podcast,
your integrated real estate and

development partner, exploring all
things, self storage investing to

bring you diversified success.

Let's dive in.

Brandon Giella: Hello and welcome back to
another episode of the AAA Storage Podcast

I have with me as always, Paul Bennett.

Thank you for joining the show.

Today is kind of an interesting episode
because we're talking about some real time

information, real time market data because
you know, for the last several weeks and

months we've been talking a lot about.

Real estate in general, self storage
specifically, you know, different

processes that you guys have at aaa.

Um, but today is interesting in that last
week there's been a lot of market turmoil.

Uh, and so for example, the s and p right
now, currently on Wednesday, April 9th

is up slightly today, but over the last,
uh, week, last five days is down 11.5%.

Last three months is down 15%.

It's about a thousand points off.

Its.

Highs, uh, just a few months ago,
and there's been a lot of volatility.

Major stocks are down and anytime that
happens, it's good to kind of level set

and talk about risk and talk about, um,
correlation, whether that's systemic

risk, whether that's track to the
market in different ways or different

vehicles that you're invested in.

And so Paul, I know you have
a lot of thoughts around, um,

around these different things
because you have lived through.

Several crises.

I mean, think about, uh, 2008 and, and
some of the bank failures and things

like that going on then at that deeply
impacted real estate as everybody knows.

Um, but is this time different?

Should we be concerned?

There's just a lot of questions
and I think it's good to, to kind

of talk about that in different
ways that you see things.

So Paul, I'll turn it over to you.

Tell me a little bit about how you see
what is happening right now in the market.

Paul Bennett: Um, yeah, Brandon, it's
a, it's a super interesting time.

Um, uh, let's, let's start out, well let,
I'll give you a little bit of a view of

what I think is happening in the market.

And this is not new
news to anybody, right?

This is no deep insight.

I think the market is re, the
market don't like uncertainty.

Brandon Giella: Mm.

Paul Bennett: even when the news
is negative, if they know what's

going to happen, the markets can
perform generally pretty well.

What they don't like is uncertainty and
the, the tariff environment, the trade.

Environment and, and the disruption of
that, um, has created some uncertainty

about supply chains, about cost.

Um, and, and in some cases, in some
industries, it's not really clear what

the impacts are gonna be, but the sense
is they're gonna be, could be significant.

And so the market's reacting
to that uncertainty, that

that's, I think, fundamentally.

Uh, what's going on?

Um, this isn't a, a political podcast.

Um, and I will be political, politically
neutral, but I will say from the

standpoint of my own sort of worldview
of economics, um, I understand that

anytime I've had to make a a a, an
important but difficult change in

my life or in my business, there
has been a period of disruption.

Brandon Giella: Hmm.

Paul Bennett: Um, and I really think,
uh, and believe that getting trade on

an international level back to a more
balanced position, um, where there

are not advantages and disadvantages.

I think we've been at a disadvantages
for 50 years and that's sort of

evolved over a long period of time.

Uh, that's why we run such big,
um, trade deficits with so many

other countries in the world.

Um, I think it's a good thing to correct
that, but I do think it's disruptive and I

think what we're seeing right now is just
the process and we'll have to wait and

see how it really turns out in the end.

But from a purely economic standpoint,
I'm not, uh, against, nor am I

concerned about what we're experiencing.

I think it's, um, probably, uh, to
be expected and could result in some

very positive outcomes long term.

Brandon Giella: Interesting.

Okay.

I'm glad to hear you say that.

Uh, not, again, not getting political
or anything like that, but it's just

like encouraging that maybe there's more
going on than what you see in, in some

immediate headlines and thinking long
term, there's a lot going on, you know.

Paul Bennett: Yeah, I, I,
I am not a Trump apologist.

I won't even reveal, I
will reveal my politics.

I'm a physical conservative and a social
moderate, maybe even a social liberal.

Um, uh, and from a physical standpoint,
from a financial standpoint, I've

spent my entire, I've spent more than
40 years, um, in the business world.

In real estate and in corporate finance,
um, there are some basic things that

you, you cannot, you, you cannot refute,
you cannot swim against the tide.

They are what they are.

They are economic realities.

And, um, and I.

And, and so regardless of who's in
the White House, I am supportive

of what I think are sound
physical policies for our nation.

Simple concepts, like things cost money.

So if you want to give more
money away, tell me where you're

gonna get the money to give away.

Um, I think it's, anyway, I'm, I'm
really getting off on a tangent.

Probably don't need to go there.

Maybe the editors can clean some
of that up, but, um, but, but the

reality is I am not concerned.

I, I, I think there could be
some negative outcomes and I, you

know, I don't have a crystal ball.

Um, I think I was on a, a show with
Paul Moore recently, um, with Wellings

Capital, and he said those who, uh,
believe in crystal balls get to eat glass.

Um.

But, uh, but so I don't have a crystal
ball, but fundamentally, from a purely

macroeconomic standpoint, um, I think
trying to reset the environment for an

international trade is a good thing.

And I'm not surprised that
the process has caused some

uncertainty in some disruption.

Brandon Giella: Yeah.

Okay.

Paul Bennett: But fundamentally, our
economy is as strong as it it has been.

Um, you know, WW we'll, we'll, we'll
swing back a little bit more to

the things we normally talk about.

I got asked today by an investor,
were we concerned about tariffs,

particularly tariffs on steel?

Um, because obviously the, the, the
self storage and office industrial

flex facilities that we develop are
highly dependent on steel, and the

reality is it will have some impact.

But if you look at the cost of steel
as the, as a percentage of the total

cost of a project, and assume a
10% increase in the price of steel.

It probably results in a 2% increase
in the overall cost of the project.

So not material.

And well within the boundaries of
the contingencies, we build into

our construction budgets every day.

So we're not expecting
it to have a huge impact.

Um, I, I know there are other industries
where, you know, that impact could be.

You know, more profound.

Um, I have two children who are
very successful in business.

Uh, one is in the mergers and acquisition
world, and they've seen, um, a lot of

hesitancy and sort of deal stopping
mid stride because of the uncertainty.

So it's impacting, uh, my son and, and
my daughter is the president of, uh,

durable medical device to company that's.

If not the largest, one of
the largest in the country.

And they have vertically integrated
the manufacturer of certain products

that they distribute and they're made
in China and there's 20 or $30 million

worth of, of, you know, of, of revenue
and profit attached to those products.

So they went through the effort to
design and find a manufacturing partner

overseas and all that, and those costs
are getting ready to swing dramatically.

If this doesn't get resolved,
and so it's gonna impact them.

So there are certainly impacts in
certain industries for self storage,

um, and the world we live in.

The business impacts, at least at this
point, look pretty negligible, so.

Brandon Giella: I think what's interesting
is something that you were talking

about, um, before we started recording
and you were talking about how to

assess risk as a real estate investor
because there's ways to think about

whether it's a market correlation or
whether it's a systemic co, uh, risk

in the actual system of real estate.

I'm curious what you mean by that, and
if you could talk a little bit about

how you're, you're thinking about
that and, and I, what I'm, what I'm

gathering is why you're not worried
about what is happening because of that

kind of risk assessment that you have.

Is that, is that the case?

Paul Bennett: Yeah.

Um, so let's quickly define
correlation for a minute.

'cause I think what we really started
out, what I started out, what was on

my mind today was the correlation,
um, between the public markets and.

Alternative investments, uh, and
the, or the lack of correlation.

Correlation is simply the degree to which
two assets move in relation to each other.

Um, easy one is stocks and bonds.

Uh, they are.

Have a low correlation or maybe
even a negative correlation in that.

Typically if stocks are going up bonds,
that's because interest rates are low.

You know, the economy's great and,
and, and bonds are not as in favor.

So they're not as in
demand and rates are low.

So they move inverse to each other.

Um.

The, the, but, but just understanding
what correlation versus systematic

risk, which is 2008, was an example
of systematic risk in an environment

where the banks got over their skis
and you saw Lehman go to its knees.

I'll never forget where I
was the day that news broke.

Um, and, and you saw the
entire banking system.

In peril.

Um, that was a systematic
risk and a Black Swan event.

Um, that is, you know, may never,
hopefully, will never occur in my lifetime

again, and, and hopefully never again.

It resulted in a lot of new
regulation and oversight of banks

and, and, and all types of things
to help prevent it in the future.

But it directly impacted real
estate because it directly

impacted access to capital.

Um, you couldn't.

You, you couldn't borrow money.

The banks couldn't loan money.

Um, that caused a free
fall in real estate values.

Uh, it, it caused construction
projects to stop mid stride.

People that had bought, we had bought
at, at, at that time, we had bought

a 17 acre piece of land just outside.

Charlotte bought it in 2006
and before we could get it

developed, all of this happened.

Um, and it was literally that project
is now just nearing completion.

Um, almost 20 years later.

And so fortunately we had the ability
to hold that land for an extended

period of time, pay the taxes.

We actually had debt on the land.

We paid off the debt.

Um, and, uh, so we just sat squatted on
the land and we wound up with a great,

so an $80 million mixed use project, 160
apartment units, and, um, a 55,000 square

foot Lowe's grocery store and about a
hundred thousand square feet of retail.

Um.

A great project, but it took us 20 years
because of what happened in oh eight,

or that was sort of the beginning.

But, um, anyway, the, the systematic
risk is a different animal.

Um, I, and I don't, I certainly don't see
any systematic risk in what's happening

in the economy and what the markets are.

This is not about the banks.

Um, this is not about.

Um, anything that, that has the
ability to directly impact real estate

in a, in a, in a traditional sense.

Um, and so it's just something
to ride through and, and the

fact that our investments are not
correlated to the public markets.

That's one of the things I came today
with on my mind is there are multiple

ways to invest in any asset, right?

Um, the, the, the tangible
assets tend to be inflation

hedges, and they tend not to be.

Correlated to the emotion and the
volatility of the public markets.

A great example of that.

I'll, I'll give you two.

I'll give you a quick one and then
the one I'd rather talk about more,

'cause it has to do with self storage.

But the first one's gold.

Like if you buy gold, if you bought
gold, um, six months ago, it's worth

more than you paid for it six months ago.

If you bought a gold stock six
months ago, it's probably up.

Because of the sort of broad view that
gold is sort of a safe haven in times

like this when things are uncertain,
but it, it might not be because

people are selling stocks because
they wanna sell stocks regardless of.

What that business does
or, or what assets it owns.

That's, that's not a great one in
this case because I, I, I didn't look

today, but I, I, I probably, gold
stocks have performed pretty well.

Here's a better one.

Um, there are actually, there are
about nine publicly traded vehicles.

They're not all REITs, but they're
publicly traded companies that are

major players in the self storage
space that we live in every day.

The names that you would know
are CubeSmart Extra Space and

Public Storage are the three.

Um, national Storage Affiliates is
the fourth, and people generally

refer to four publicly traded REITs.

Uh, but there are about three
or four other companies.

For example, U-Haul, um, is a major
player in the self-storage business

and they're getting, they actually
have committed and are expanding

their presence in self storage.

And so I looked at those stocks,
uh, over the last, um, little bit.

I looked at 'em on a five day basis as of
the close yesterday and a 30 day basis.

And I'll go down the list, CubeSmart.

Down 14.6%

in the last five days, 16.46%

in the last 30 days.

Public storage down 10.9%

in the last five days, down 15.18%

in the last 30 days.

Extra space, uh, down 14% in the last
five days, almost 20% in the last 30 days.

Um, let me ask you a question.

Do you think the real estate
those REITs own has decreased

in value over the last 30 days?

Brandon Giella: I hope not because
my house would be worth all at less.

Paul Bennett: again, absolutely
promise you it hasn't changed a bit.

And it's interesting, you
mentioned a minute ago that the s

and p was down, I think you said
about 15% over the last 30 days

Brandon Giella: Mm-hmm.

Paul Bennett: if you averaged out.

The declines over the last 30 days I
just gave you for the four large publicly

traded real estate investment trust.

I'll bet you an average is 15%

Brandon Giella: Mm-hmm.

Paul Bennett: correlated
to the s and p decline.

I.

Brandon Giella: Mm-hmm.

Paul Bennett: Um, so what the, the,
the reality is the assets those

businesses own, those REITs own,
um, don't produce a dime less cash

flow than they did a month ago.

They're not any less valuable
than they were a month ago.

They simply, that stock is down 15%
because people decided to sell stocks.

And that's the, that's the example
of correlation, uh, uh, correlation

in, in a very specific way.

And it's not uncommon, um.

There are privately traded REITs
that, that offer the same type of

vehicle, um, to invest in self-storage
and office and medical office and

industrial and all kinds of things.

And the privately traded REITs don't
have that same share price correlation.

They're typically valued based on
appraisals that are done of their

portfolio on a semi-annual or
annual basis, so low volatility.

The trade off is, and I should have
mentioned this upfront, the reason people

invest in REITs is because of liquidity

Brandon Giella: Hmm.

Paul Bennett: Access to the public
market means I could call my broker,

sell my extra space stock today, and
the money would be sitting in my cash

account or my money market of fund
at the broker in five business days.

Um, you do not have
that kind of liquidity.

When you're investing directly into real
estate, whether you own it yourself,

you invest with a fund sponsor like us.

Um, and that's the trade off.

Um, and so I am not against owning.

I.

Stocks in our industry that have
correlation to the public market.

I just think you have to avoid
having a false sense of security.

If you're looking at your
portfolio and you've got a bunch

of ETFs and mutual funds, I.

And you, you're smart.

So you've invested in real estate and
you've invested in self storage, but

you've done it through buying, um, stock
in one of these publicly traded REITs.

You're not as diversified as you think
you are, um, because everything you own

is, is correlated to the emotion and
the volatility of the public markets.

And I think.

I've said this before in
some of our conversations.

I am an absolute firm believer
and my own personal portfolio

would reflect this, that any.

Person of substantial network.

If you're an accredited investor,
um, you almost have to have an

allocation in your portfolio that's
direct into, I think, real estate.

I mean, I think you can have some, you
can have some venture capital stuff.

You can have some pure
private equity stuff.

You can have gold that there, there,
those are all assets that are not

c correlated to the public markets.

All of them are good, I think.

I think in terms of risk pyramid, right?

Uh, I don't know if you can picture
it, but you know, treasuries are

at the bottom of the risk pyramid.

Commodities are at the top, um,
and it's sort of stratas of risk

in return going up the pyramid.

If you're looking at an allocation to
non-correlated assets, real estate is

at the bottom of that risk pyramid.

So I think almost every portfolio, whether
you like self storage or not, whether you

wanna invest in multifamily office retail.

I, I, I just am a firm believer
that, that, um, that you, you

need to have an allocation.

And the other thing, and I'm an
opinionated guy today, aren't I?

But the, the other thing is, um, I, I
think a lot of investors are getting

advice or guidance from people whose
objective is investing for beta.

Um, and that's a very defensive.

Posture in my mind, it's a, it's a
good way not to lose money, but it's

also a good way not to build wealth.

And one of the things that we are
very focused on in what we do is

investing for Alpha, um, which is,
you know, trying to get outsized

returns on a risk adjusted basis.

And you don't have to do
that across your portfolio.

Uh, and certainly where you are in that
journey depends on where you are in age

and retirement and overall net worth, but.

But at least a portion of your portfolio
ought to be invested for alpha, not beta.

And um, and so there, that's my opinion.

Brandon Giella: Okay,
this is very helpful.

So if I could summarize, there are
trade policies and tariffs that are

entering into the world and causing
disruption and chaos and uncertainty.

Markets do not like that.

As a result of that, we see a lot of
declines across your broad markets,

s and p, Dow Jones, NASDAQ, across
the major blue trip stocks like

Apple and you know, many other.

In the public markets and, uh, what some
people think is, oh, I should diversify

my portfolio and I put money into REITs
because I need to be in real estate.

But that is a false sense of
diversification because there's

actually not an underlying asset or
direct investment in real estate.

It's just in a stock that is
correlated to the s and p 500.

Paul Bennett: I, I wanna correct you
right there because they are invested

in, they are invested in real estate.

Brandon Giella: Yes, correct.

Paul Bennett: St.

Public Storage is the largest owner
of self storage facilities in the

country, may, maybe in the world.

Um, but the problem is, is the vehicle
that you've chosen to invest in them

or with them in is subject to the
emotional volatility of the overall

Brandon Giella: Okay.

Fair.

Yes.

Fair, true.

Okay, so, but it would be
better, what you're saying is

you could have more piece or.

I'll just say peace in a, a market
turmoil like this, like we're

experiencing now, if you had more direct
investments in something like real

estate or gold or something like that.

But, but yeah.

Okay.

Okay.

So that as a result, you feel a lot
of, uh, you feel more comfortable

than the headlines would suggest
in a lot of the major papers

right now, over the last week.

Paul Bennett: Yeah, you know, um, there's
another game going on behind the scene.

The current administration is
trying to leverage the, the,

uh, the fed to get rates down.

Um, there's a major refinancing
of federal debt that's looming.

Um, and, and part of what's happening
is, you know, is, is a little bit

of gamesmanship, um, trying to
put some pressure on the fed to

lower rates, which I'm all for.

Obviously in our world, lower
rates are a good thing generally.

Um, know, if, if, if there is a
real threat of inflation, um, it was

already baked in this, this trade war.

It might be the straw that
breaks the camel's back.

Um, but I, I don't think so.

I, I, I think if there's, if
there's a recession on the

horizon, I don't really buy it.

The economy's been pretty resilient
on the whole, um, it, it, it,

it was already baked into what's
happened over the last, you know, I.

Period of time.

And, um, and recessions aren't
necessarily bad either, you know, um,

it, it, it sort of shakes things up
and repositions things and creates

new opportunities and creates a little
pain, like I said at the very beginning.

Disruption and change is always
difficult, but it's a part of the cycles.

Just like down markets are part
of real estate cycles and they're

unavoidable, and they come and they go.

Um, we invest, you know, for
the intermediate to long term.

I just, I'm too old to worry
about it anymore, Brandon.

Brandon Giella: I'll end the show there.

That's perfect.

Thank you.

Thank you.

I'm, I'm gonna take your advice
and I'll, I'll try not to

worry myself, but we'll see.

We'll see how it goes.

So, Paul, thank you so much for
your, your wisdom and experience.

'cause I am, as I've
said before, I'm young.

Uh, so I appreciate your, you, you,
having been through this a time or

two and giving me some, some comfort.

So I appreciate that.

I hope our listeners feel the same.

Uh, so we will see you next time in
a few weeks and we'll catch up then.

Uh, so Paul, thank you and we'll see you

Paul Bennett: That sounds great, Brandon.

Always enjoy buddy.

Brandon Giella: See you man.