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.

Hey Paul, how are you?

Paul Bennett: I'm good, Brian.

Brandon Giella: It's good to see you, man.

So last week we talked about, um, a
kind of like a wisdom perspective on

how you see things given your decades
of experience in the real estate market.

And this week I wanna talk a lot more
about the data, the quantitative picture

of where we find ourselves in the
real estate market and this, so this

is kind of a mid-year update in 2025.

And it seems that the data
indicates we are somewhat at a

bottom in the real estate cycle.

I know there's a lot of nuance to that,
which we'll get into in different markets

are experiencing that in different ways.

And of course, disclaimer,
we cannot predict the future.

We humans are very limited in that
way and we're very bad at it, but.

Seeing what we can see in the data.

There is some indication that this,
this may be a bottoming period, which

means this is a really great time to
consider getting into real estate.

Kind of self-serving, giving the podcast,
and giving the, the sponsor here.

But, uh, Paul, I want to hear from you,
uh, what data are you seeing in these

different markets that you've analyzed?

I know you've been, you know,
pouring over some notes.

Uh, what are you seeing and what can
you tell us about these different

markets and how you're, you're
thinking things are, are playing

out as we're in the middle of 2025.

Paul Bennett: Brandon, it, it is really
an interesting time, uh, uh, as I looked

at data over the last day or two, um,
in preparation for this conversation.

Um, and I do have some
notes in front of me.

I don't normally, but there's a lot of,
lot of numbers and a lot of data, and

I was afraid I would forget some of it.

So, um, but a couple things came clear.

Number one is I think every sector
is in a little bit different

stage in the bottoming process,
and we talked about that.

For, you know, the last couple
of episodes in different ways.

Um, but it, it, it's also very interesting
to me as I looked at all the data and

thought about the fact that we sit here
today in May of 2025, almost June, almost

exactly within two months of, of the
onset of the pandemic and the lockdowns.

And as you look across the sectors,
even though they're in different places

and, and, and they, they, you have
different dynamics going on, all of.

Where they are today.

Each one for its own reasons,
is tied to the impact of, of

COVID-19 and the pandemic.

And the shutdown in 2020.

Um, and, and everything
that happened after that.

So it is really, it really
an interesting look.

Um, but yeah, we've, I think, I think it's
fair to say that in most sectors we're

seeing either the beginning of a bottoming
process or, or even late stages in some

of the sectors of a bottoming process.

Brandon Giella: Interesting.

Okay, interesting.

So I know, you know,
every market's different.

We talked a lot about the different, you
know, asset classes and even hyper-local

markets and how you guys think about
geographic regions and things like that.

So, uh, where should we start?

Where's like the, the entry
point to all this data?

Uh, is it a particular asset
class or, or, or region?

How do you, how do you think about it?

Paul Bennett: I think, I think
let's talk about asset class.

I think that's a

Brandon Giella: Okay.

Paul Bennett: to organize the thought.

And we've, we've talked a lot
about multifamily, um, you know,

over the last few weeks, so we
can kind of start with that one.

Uh, as I looked at the data for
each sector, I kind of, a theme

emerged and I would say the theme for
multifamily is gathering momentum.

Brandon Giella: Hmm.

Paul Bennett: if, if you look at.

If you look at multifamily,
um, it was subject to a pretty

traditional, predictable dynamic.

Um, when COVID hit, there was, there
was some mobility people wanted to

get out of the major cities in the
Northeast and get to the southeast

in the sunshine Belt, as it's called.

And that combined with demographic
trends and low interest rates caused

a tremendous amount of development.

Um, that all came home
to roost in late 22, 23.

Um, and you saw rent declines.

You saw project struggle to
lease up because it was an

oversupply in the market.

Um, and, and there were
some real headwinds.

There were some investments that
didn't turn out very well that were

made in that 20 20, 21, 22 timeframe.

What you see in the market now is, for
example, rent growth is positive and just

only slightly below the long term average.

The long term average,
uh, is a, is about 2.6%

rent growth on average across
the country, about 2.2%.

Brandon Giella: Hmm.

Paul Bennett: know, today,
um, you, you've got vacancy up

slightly in some markets up about.

Um, you know, 2% overall to about 6.2%.

Um, but you've also got a dramatic
decline in new construction.

New

Brandon Giella: Hmm.

Paul Bennett: in the multifamily
industry is at a 10 year low right now.

So what you see is it transitioning
from a market that was out of

balance in supply and demand to a
market that's coming into balance.

I don't think you'll see the
kind of growth that you saw.

in that 21, 22 period early coming
outta the pandemic where rents

were, there were markets where rent
growth was 6 or 7% year over year.

I don't don't think that's a normal state.

I think it was driven by the pandemic
and some of the, effects of the pandemic.

But I think you'll see it,
you know, settle back in.

And if you look at, I looked at about
four different projections from CBRE,

one of the major real estate firms in the
country, Freddie Mac, Fannie Mae, Morgan.

And what you see is all of
them predicting rent growth

this year in the 2 to 2.5

Range.

JP Morgan's a little
bit above that at 2.7%,

and all of them are predicting vacancy
rates right around the 6% range.

and feel like vacancies may peak
a little bit later this year, but

only a matter of a handful of basis
points above where they are today.

and then really stabilize.

Um, so you, you've got, you've got
pretty good fundamentals shaping

up in the multifamily space.

Um, and cap rates today are
in the five and a half to

five and three quarter range.

Uh, they've crept up about 30
bips, 30 basis points in the last.

Few months, uh, but seemed
to be fairly stable.

And that's a, that's on the high end.

I mean it, during the heat of the
market, we saw cap rate sub four.

Um, and so, you know, it's, it's,
that's a, that's a crazy number in

terms of the value of these properties.

It's come back into a much more
reasonable range now, you know,

sub six, but, but not, you know,
not way down in the low five.

So, um.

I, I think, I think you've seen
net absorption go up by 46%.

Um, you've seen rent growth stabilized.

You're seeing occupancy fairly stable.

I think it's a clear picture that,
that multifamily is sort of in the

middle of that bottoming process.

Um, and, uh, and I think the only
negative in multifamily is that you're

still seeing, um, negative leverage.

You're still seeing.

interest rates that are higher than
the cap rates, and if interest rates

will moderate a little bit more in the
last half of 2025, which is at least

a possibility, uh, I think you'll
see that one negative go away in the

market really start to get traction.

So, uh, maybe a little tough time
to develop multifamily, uh, but

certainly not a horrible time
to acquire existing properties.

Brandon Giella: Cool.

Interesting.

Okay, that's helpful.

So the theme with multifamily is
gathering momentum C to B, maybe at

the center of this bottoming period,
possibly on its way up, uh, from

ESSA's perspective, which is good.

Paul Bennett: Yeah, there, there's
an outlier out there that I can't

really predict and now I'm just gonna
confuse people, but the, obviously

the multifamily sector is tied to,
the residential housing market.

Brandon Giella: Okay.

Paul Bennett: and today it's about
$1,120 a month cheaper to rent,

based on average rent rates for a two
bedroom apartment than it is to buy.

a, house that's a pretty big spread,

but what you're starting to see in
the housing market is you're starting

to see some signs of weakness.

Listings are way up, inventory's up.

Prices are beginning
to soften a little bit.

somewhere in the neighborhood of 20% of
all sellers we're willing to make a price

concession to get the property sold.

you're.

One of the things that's driven a lot
of the demand over the last five years

for multifamily has been the cost of
housing and the cost of entry of money.

That

Brandon Giella: Yeah.

Paul Bennett: cost of mortgages.

those moderate a little bit, it may
take a little bit of the wind out of

multifamily sales, but I don't think
it's significant enough to change

the prognosis that it looks like it's
really beginning to gather momentum.

Brandon Giella: Yeah.

Okay.

Okay.

So is some of that complication also
due to the, I, correct me if I'm wrong,

but the, long dated maturities, long
end of the curve for bond markets

is still pretty elevated even though
people thought maybe it was gonna.

Come down a bit in this first, first
half of the year, but it's still

around 5%, I think, on the 30 year
or 10 year or something like that.

So is that, is that kind of projecting,
like pushing out that, um, I guess

the, the positive outlook is, if
that's the way I could say it.

Paul Bennett: Particularly in the
housing market where you saw rates get

Brandon Giella: S

Paul Bennett: a little bit into
the mid, sort of mid range sixes

Brandon Giella: mm-hmm.

Paul Bennett: you've seen 'em tick
back up to around seven a little

bit over what the housing market
is telling you is 7% is too much.

you

Brandon Giella: Interesting.

Okay.

Paul Bennett: buying activity
decline and inventories build

every time, rates get around 7%.

So, um, and, and unless.

We get some rate relief.

You're gonna see downward pressure
on residential housing values,

which may open up that market to
some people who are prospective

renters today, if that makes sense.

Brandon Giella: Yeah.

Okay.

Interesting.

That's helpful to know that threshold
7% is something to, to look for

at least on the mortgage rates.

Interesting.

Okay.

Okay.

What's the next asset class
and, and theme you got going on?

Paul Bennett: gonna skip
around a little bit.

This one I won't talk about
in great detail, but it's

actually one of my favorites.

Retail,

Brandon Giella: I.

Paul Bennett: for retail is stability.

Um, what you saw was some, some short
term pressure, um, you know, during

the pandemic itself, when certain.

of retail locations were shut down and,
you know, people weren't going in there.

But the ones that survived that
have have done pretty well.

And retail real estate's returned
to normal fairly quickly.

Um, and, and.

It, it, you know, the, the first pressure
that it faced was all the, the buzz

about all the online purchases that
people were making, um, and how that

was sucking the wind out of retail.

And it, it did, it still has
a real profound effect on mall

properties and department stores.

And, but the retail that I like more than
any is grocery anchored shopping centers.

Brandon Giella: Okay.

Paul Bennett: although you
can buy groceries online.

95% of all people still wanna go in
the grocery store and, and go grocery

shopping and grocery anchorage shopping
centers have all of the neighborhood

services that you can't get online.

It's, you got, it's got
your State Farm agent.

It's got the, the nail place, it's
got the, the pediatric dentist,

it's got the veterinarian,
it's got the, all the services.

Um, so a well located grocery anchored
shopping center to me is, has been

and continues to be, um, a great.

A a.

A great.

Part of the real estate world,
consistent demand, low vacancies.

And interestingly enough, as I
looked at some data, institutional

investment in grocery anchor
anchor chaplain centers is up 400%

Brandon Giella: Gosh,

Paul Bennett: of 2024.

so, you know, you, you've got some real
serious money that is looking at that

grocery anchor space and, and, uh, and,
and likes what it sees and has been

deploying capital, you know, fairly, uh.

Fairly aggressively.

Um, lease volume growth, which is another
statistic that you look at, is gonna

be somewhat limited, but it's somewhat
limited 'cause it's constrained by supply.

The problem is you can't lease
up a lot of stuff 'cause there's.

Not a lot of stuff to lease up

Brandon Giella: Hmm.

Paul Bennett: if that makes sense.

So the rent, the, the, the, the rent
volume numbers are sort of flattening

out, but that's really because there's
so little supply in the market,

there's so much demand, um, that uh,
that there's just not room for a lot

of lease, you know, new lease volume.

Um, but you, you're seeing markets in
some cases that are seen as much as 6%

rent growth, um, in the retail space.

And again.

Retail's broader than just
grocery anchored shopping centers.

Um, the general retail space, all
these dynamics apply, but they're

probably especially, um, uh,
pertinent to the grocery anchored

space in retail, which is again, um.

I've owned several grocery anchor
chap centers over the years and just

developed one, um, outside Charlotte,
North Carolina in the last few years.

Uh, and I'll tell you, it's an interesting
thing and we'll get off this one.

'cause this is a sort of a, an
offshoot category, but we had a,

the development I've talked about
before, we bought the land in 2006

Brandon Giella: Mm-hmm.

Paul Bennett: we had a site plan.

We, we battled through a zoning
battle that took forever after we

had to hold the property forever.

Um.

had a site plan that we thought
would work, but we were having

a little bit of initial trouble
leasing up some of the other retail

space in this mixed use development.

It was 160 apartments.

Um, and we had a daycare planned
on the site and then about a

Brandon Giella: That's cool.

Paul Bennett: feet of retail.

Um, along the way we were approached
by a grocer in the Charlotte Market,

Harris Teeter, and they moved.

Too slowly, but that sparked
us to talk to another grocer,

Lowe's Foods in the market.

They very quickly loved the site.

President visited, signed a
lease, and that grocery anchor

transformed that entire project.

Brandon Giella: Wow.

Paul Bennett: Um, we, we, we
leased up the, the, the rest of the

commercial space and record time.

Because of the rooftops that surrounded
that property and because of the value of

a grocer tenant in that muse development,
it really flipped it on its head.

And, uh, and, and now even the
people that fought us in the zoning,

there's a neighborhood adjacent to
the property that, um, really, really

battled hard in the zoning battle.

Um, the convenience of being able
to never leave their neighborhood.

Our, our development is connected
to their neighborhood by a road.

They can never leave the development and
go to the grocery store, stop and get.

Stuff at other retail locations
would be back home in five minutes.

They absolutely loved
the project, but it was

Brandon Giella: Yeah,

Paul Bennett: to get there.

So anyway.

Brandon Giella: that's huge.

That's huge.

It's interesting that it takes that.

One thing that if you can get
that anchor, it flips everything.

And I totally get it.

I live in kind of a food desert where
uh, everything else is walkable except

for a grocery store, and I really wish
there was a grocery store right here.

Paul Bennett: Yeah.

Yeah,

Brandon Giella: Cool.

I love that.

Paul Bennett: is retail.

The, the theme for retail is stability.

It has been fairly solid, um, you know,
in more recent, over the last two or three

years and remain so, and particularly
the grocery anchored space, um, you know,

is seeing a lot of inflows of capital.

Um, so really good values there.

And, uh, and, and it's just a
product that won't be replaced.

And so I, I think it's an excellent
area to look, um, the, the next.

Sector up is industrial.

And I would say the theme for
it is, it's fundamentally sound.

you, you've got two parts of the
industrial space in the terms of we

think, uh, how we think about it.

One is the general industrial space,
which is really a hundred thousand

square foot properties in up that space.

Had its own COVID impact.

Um, you know, COVID drove a lot
more online purchases and caused

companies to really rethink their
supply chains and their logistics.

Um, and so there was a tremendous
amount of demand for general

industrial space coming outta COVID.

Uh, low rates fueled everything that
we're talking about in that timeframe.

When you saw, you know, when you could
go borrow money at 3%, everything,

every deal was easier to pencil.

Um, and so the, the, the, the.

The importance of logistics and supply
chains and the shifts caused by COVID

combined with a lower interest rates
caused, um, a little bit of oversupply

in the general industrial space.

Um, so it, it had its sort of hiccup in
2023 rolling into 2024, but you're now

seeing that balance out a little bit.

Um, development has slowed.

Um, and, and we're really getting
back to the pre pandemic sort of

balance between supply and demand.

Um, so general industrial is,
is, uh, is stabilizing with.

With, um, vacancy rates in the seven to
8% range, which is a fairly low number.

Brothers see it around 95, you know,
around four to 5%, but still not way off.

Uh, where, where you'd like to see it?

The small Bay Industrial.

I.

Which is the product we build, um,
continues to be extraordinarily strong.

I, I would tell you that it's
ultra tight in most local markets.

Um, national vacancy is around 3%,
so, you know, 400 basis points lower

than the general industrial category.

Um, and it's interesting,
I, I was trying to.

Look at data and get a feel for why there
was such a supply problem in that small

bay industrial, um, And part of the answer
is developers like to do bigger projects.

Brandon Giella: Okay, tell me more.

Paul Bennett: the, um, there, there,
it's, it's just a matter of efficiency.

If, if I can build a million square
feet, um, and lease it, that's in

one project, that's easier than,
than building, you know, our typical

small bay business park will run.

A hundred thousand square feet.

So I'd have to find 10 pieces
of land, get it zoned 10 times,

Brandon Giella: Yeah.

Right.

Paul Bennett: 10 separate projects
to get to a million square feet.

So I, I think there's
a little bit of that.

It was just an interesting comment
I read, um, in doing a little bit

of research, but, but overall, the
industrial category is returned to sound

fundamentals and the small base space.

Continues to just be
as hot as a $2 pistol.

in most markets, it literally, in Las
Vegas, there is zero availability,

just one market to, to pick on.

and like you said, with a 3% vacancy
nationwide, a product and it's, The

people we've talked about before, it's
local and regional service providers.

It's last mile logistics.

It's internet based businesses.

It's light manufacturing.

And now there's even a trend,
although we haven't really gotten

involved in it, of, man cave,
uses for these industrial spaces.

Guys that wanna put their, their,
cars and their toys and, maybe

create a living room environment
and have a place to get away to.

I, several people have
talked to me about it.

I, just.

I, hadn't been able to wrap my head
around that, but apparently it's a

use that's becoming more common in
that small bay industrial space,

Brandon Giella: Interesting.

I feel like this is something you
should follow that rabbit trail

and see what's up with that.

'cause that's, a fascinating factoid.

Interesting.

And you've mentioned before, I
think too, of like batting cages.

Is that something you've
talked about before too?

Things like that?

Yeah.

Yeah.

Yeah.

Paul Bennett: After building this
product since 2011, and almost all

of our tenants being the people I've
already described, local regional service

providers, HVAC, contractors, plumbing
contractors, car repair, providers.

Last mile logistics, all that.

In the last year, we have seen more retail
or consumer facing uses for the space.

The explosion of pickleball is a sport

Brandon Giella: Yeah.

Paul Bennett: sport in America.

Brandon Giella: Yep.

Paul Bennett: have two of our
20,000 square foot buildings that

we would typically divide and.

You know, 3000 square foot bays and have
multiple tenants in, um, have actually

we've leased the entire building into
a pickleball operator and finished

it out as a private pickleball club

Brandon Giella: That's crazy.

Paul Bennett: and a restaurant and
a bar and non, you know, indoor

Brandon Giella: cool.

Paul Bennett: courts on the bottom.

We've also seen the batting cape.

We've had.

Two facilities we've leased to batting
cage operators, um, that, you know,

that want 15 to 20,000 square feet at
a pop where they have batting cages and

they often have a workout sort of area.

'cause they're training with these
younger athletes and so they're

lifting weights and, and doing drills
and that type of thing in addition

to just, you know, hitting baseballs.

And so anyway, it's been some
very unique uses for that space.

So it's,

Brandon Giella: How interesting.

Paul Bennett: space.

It's super flexible.

That's one of the reasons why
it's in such demand in almost

every market in the country.

Brandon Giella: Yeah, I was gonna
say, it's like, it's almost like the

confluence of many different trends
that if you say like, you know,

the rise, the, the, the internet.

Businesses, if you will, over the last
couple of years, there's an increase in

entrepreneurship in general, which, uh,
has fueled, I'm sure a lot of this, but

also the, the logistics, the e-commerce
thing, people need little warehouses and

fulfillment centers, things like that.

And then you get this consumer demand,
if you will, the man caves, the, the

batting cages, the pickleball cords.

I think it's fascinating.

Yeah.

Paul Bennett: And, and people who, I
mean, I think people who aren't in the

business think about self storage and
they picture somebody like you or me

moving our stuff into a self storage unit.

Brandon Giella: Mm-hmm.

Paul Bennett: is every
one of our self storage.

Facilities has a pretty significant
business customer base, um, where

businesses are keeping inventory in a
self storage facility or if they're a

landscaper, they're actually running
their business out of a self store.

They keep fertilizer and lawnmowers and
stuff like that in the self service.

And so, which is why we build.

Self-storage and office industrial flex,
or small bay industrial side by side.

'cause there's actually some synergism.

You get a customer in the self-storage
facility that his business begins to grow.

He needs more space.

He can literally move on the other
side of the fence into one of

our office industrial Flex Bays.

And we wind up with flex
customers who need even more.

You know, warehouse space, and they've
got the 2000 square feet, they've got

behind their a thousand square feet of
office and they rent a storage facility.

So there actually is some synergy between
the two that wouldn't really be obvious

unless you're kind of in the business.

Brandon Giella: Yeah, that makes sense.

I have a friend who runs a jewelry
business and is, uh, getting out of

his, uh, house because of so much
inventory, he's gonna put that in

some self storage kind of flex space.

So.

Yeah, it's, it makes sense.

I love that.

Okay, so we've got, uh,
multifamilies gathering momentum.

Retail is, uh, a point of stability
and industrial is fundamentally sound.

What's next?

Paul Bennett: Office continued

Brandon Giella: uh, a sour point in Yes.

Real estate.

Yes.

Paul Bennett: a great job of stringing it
together, but where each of these markets

is today is directly related to dynamics
that were created as a result of COVID.

None is more directly correlated to
what happened in COVID than office.

And it's obvious, right?

Um, it, it, the technology was
already there, Lockdowns during COVID.

Really it just caused an explosion
in the remote work world.

and people have been very hesitant to
go back to, the office, so to speak.

right now, The

the expectation is that vacancy in the
office market will peak in 2025 about 19%.

that's a pretty significant.

Vacancy, rate and I said
2025, it's actually gonna peak

during the year 2025 at 19%.

The data shows that it will continue
to climb and actually finally

peak and maybe start down in 2026.

and there's a of pressure on older.

Class B and Class C properties.

The Class A properties in core
markets like Los Angeles, New York,

Dallas-Fort Worth, Miami shown a
little bit of sign of stability lately.

but the, Class B and class C
properties and anything with age

on it, is facing real headwinds.

And right now, today there's $175
million, so 175 million square feet of

sublease space available in the market.

also interesting to note that, That,
are down dramatically, which is

part of the recovery process, right?

When a market gets sideways,
like office has, doesn't make

sense to build new property.

So slowly over time or sometimes quickly,
that excess inventory gets absorbed.

The market begins to stabilize,
and, um, starts this year in the

office world will be about 17
million square feet, the average.

Starts on an annual basis.

Over the last 10 years have
been 44 million square feet,

Brandon Giella: Wow.

Okay.

Paul Bennett: so I, I didn't
do the math, but that's a.

60% decline, something

Brandon Giella: right?

Yeah.

Paul Bennett: Um, so you're seeing the
market, the, the, the development market

react to what's happening with office,
um, today and, and really, you know,

pull back in terms of building new space.

Um, another interesting dynamic in
the office market is that the large

companies, more than you know, 10,000
employees are the ones that are

downsizing and abandoning office space.

Brandon Giella: Okay.

I was just about to ask you a
question that I, I was thinking

maybe it'd be the reverse.

Paul Bennett: It's actually the, uh,
the, the, uh, companies with less

than a thousand employees are the ones
that are expanding their office space.

The, the amount of office space
they're absorbing, they're

growing, they're adding people.

Um, probably have, this is an opinion,
or not even an opinion, I thought.

Um, but they probably have a little
bit different cultures, you know.

Um, and so people are, um.

likely to give into the request that
they come and work from the office.

Um, but so it's a, it's a,
it's an interesting market.

There are some people that are
saying that they're seen early.

Signs of recovery, leasing
activity is up a little bit.

Um, and there are some people out
there that really focus on the

office market that think you're
starting to see the very, very

beginning of a stabilization process.

But unlike multifamily, where it's gaining
momentum, office is a year and a half to

maybe two years behind where multifamily
is just as a point of reference.

So, um.

it's, it, it, it may be entering the
bottoming cycle, whereas multifamily

is in the heart of the bottoming cycle.

That's where that year to year and
a half gap between where they are

in their cycles probably exist.

Brandon Giella: Okay.

I have.

Not even an opinion, but a thought,
uh, where, so office is in a

continued challenging environment
and you've got Class A structures

doing okay in major markets.

And my thinking was, oh,
well, because they're.

Typically really beautiful offices.

You go to these big fancy, nice
places with a, at a big tech

company, for example, and they
have coffee and you know, shopping

around and all that kinda stuff.

And so it's, it's attractive
for people to go into.

So these bigger companies are.

Paying top dollar for these places,
class B and C not doing so well.

'cause they're older people
are less likely to want to go.

Um, but what you said was these larger
companies are the ones that are actually

shedding office space and smaller
companies are growing office space.

So yeah, I'm just fascinated by why
that might be, but also why the,

the peak might be coming, let's
say in the next 12 to 18 months.

Uh, yeah, I'm just, I'm just fascinated
'cause one storyline out there is that

Gen Z uh, workers want to be in the
office because they want that mentorship

and camaraderie and things like that,
that millennials and older already got.

So they're fine working at home
'cause they're mid-career Gen

Z wants to be in the office.

So that's, they're actually
more excited to be back in.

So, I don't know.

There's so many different storylines.

I'm, I'm interested in.

Paul Bennett: Yeah, it's a, it's
a, it's a, it's a confusing market.

I mean, quite frankly, um, it's
a market I'm not interested in.

Brandon Giella: Okay.

Yeah.

Paul Bennett: I, um, because, because
there are, you know, four other

sectors in the real estate world where.

Sort of where they are and where they're
likely to be going is more clear.

Brandon Giella: Yeah.

Right.

Paul Bennett: I I, I, I think
there's probably going to be an

opportunity as this shakes out.

I think it's early.

I think you are a year to two
years away to pick up some Class

B You know, add a good value.

But as there is in every market
with this kind of thing happens,

there's a dislocation between
what buyers are willing to pay

and sellers are willing to take.

Brandon Giella: Right.

Paul Bennett: market has not
worked out that dislocation yet.

So sellers are still wanting,
you know, prices based on a,

you know, an earlier time.

And buyers aren't willing to pay that.

So you're seeing transaction
volume, you know, decline.

Um, you know, month over month.

Um, only transaction, not, not only, but
I mean there are you, you, you've got

some people that get backed in a corner.

Um, you know, that, that from a,
you know, a debt standpoint where

they've got maturities coming at
'em and they can't refinance because

they're running it, you know?

80% occupancy, um, that are
forced to sell, um, you know, in

creative sort of deal structures.

But the normal transactions between
a buyer and seller, um, just aren't

happening because there's a real
dislocation in the office market.

They'll, they'll be a point where
it'll break you'll be able to

pick up a Class B or class C.

You know, property in the right market
at a good value that makes economic

sense and have an opportunity to really
see the value of that property grow

above what you paid for it over time.

But I just don't think we're there yet.

Brandon Giella: Yeah.

Yeah.

The work from home debate is
still unsettled, so we'll see.

Paul Bennett: yeah, yeah.

It's, but you know, that's the one
that, that suffered the most direct

from a real estate standpoint,

Brandon Giella: Right.

Paul Bennett: impact.

Um, you know, uh,

Brandon Giella: Yeah,

Paul Bennett: was the office market and,
and it's still trying to figure out.

Where it's going.

Brandon Giella: yeah, yeah.

Makes sense.

Makes sense.

Paul Bennett: hospitality
only really briefly.

I didn't dig deep.

Um, not a lot of data from me there.

Um, but if you look at it
relative to COVID, it was a

very severe short term impact.

I.

Um, you know, with during COVID, during
the lockdowns, you know, it was a, a

very severe impact on the hotel industry,
but if you were able to survive that,

it rebounded pretty quickly and it
rebounded in a positive way because I

think we were all so by inability to
travel and be mobile during COVID, that

people have done more of that post COVID.

Brandon Giella: Yes.

Right.

Paul Bennett: and, and the hospitality
industry has, has benefited from that.

When I say hospitality, I didn't
look at at restaurants and that type,

I'm really talking about hotels.

Brandon Giella: Mm-hmm.

Paul Bennett: occupancy today, on
average in the hotel industry is

about 63%, two point a half points
below the pre COVID occupancy.

But rates and revenue per
room above pre COVID levels.

So what you're seeing is a return
to solid profitability, even though

occupancy is down, um, just a little bit.

Um, and so the hospitality market, you
know, is, is pretty stable actually.

Um, I didn't look a lot at supply
and demand, uh, and development, um,

because it's just a, it's a asset class.

A lot of people don't
look at as an investment.

Um.

and it has a very
operating dynamic, right?

You think about the stratas of real
estate, if you're in the grocery Anchorage

shopping center business, you know, your
anchor tenant has a 20 or 30 year lease.

Um, if you go to the hospitality industry
at the other end of the spectrum, your

tenant base turns over every night.

Brandon Giella: Right.

Paul Bennett: and which is also why
you see generally higher cap rates

in the hospitality industry because
the cap rates were a reflection

of the, um, likelihood of the, the
continuance of the cash flow stream.

And when you, when you literally
turn your customers over every night,

it's more volatile than a 20 year.

Leased with Kroger.

Brandon Giella: Yeah, that makes sense.

Paul Bennett: that's a whole
different conversation.

Brandon Giella: Yeah.

Yeah.

Paul Bennett: but, but hospitality
is, is fared pretty well and, and,

and seems to be kinda leg spread wide.

And, uh, again, occupancy's a little off.

That's probably due to some of the new
supply that's coming into the market.

Uh, but overall profitability solid.

Across the industry and,
and, and looks pretty good.

Um, I, I saved the, the one selfishly
other than, um, the small bay

industrial, uh, storage I saved for last.

Uh, we've talked a lot about it.

Don't need to beat it to
death, but it's stabilizing.

It's absolutely, um, stabilizing and
it, it, it suffered a very interesting

rollercoaster ride because of COVID.

We've talked about this before.

The use of storage
exploded when COVID hit.

for obvious reasons.

Um, people were cleaning out bedrooms
to make offices out of them so they

could work from home, or they were
just bored and they were at home and

they were cleaning out the garage in
the attic and, you know, whatever.

Um, occupancy went well north of 96%.

You know, some markets, 97, 98.

that combined with low
interest rates spurred a ton of

development that started in 2021.

End of 2022, the headwind started to
show up in sort of mid 2023 as rates.

There were downward pressure on
rates because of the oversupply.

Um, and we had a 28 month period
where year over year rates, street

rates advertised, rates declined.

So, um, if, if you bought a
facility, you know, in 2022.

Late 21, 22, what you had happened to
you was you saw cap rates expand, which

meant the value of the property went
down and you saw your revenue decline

over month for 28 months in a row.

And if you bought a property
in 21 or 22, you probably, are

sitting right now at about.

A 30% decline in the overall
value of that property

today

Brandon Giella: Gosh.

Paul Bennett: were to sell it.

however, the market is stabilizing.

Street rates have stabilized,
they're starting to move upward.

and as it does in, almost all
markets, you're development

has slowed dramatically.

today the pipeline
inventory is about 2.8%.

of current stock.

So it's, when we started
talking about this a year ago,

average it was about 3.2%.

So you've seen it decline from 3.2%

of current stock to about 2.8.

the projections that Yardi and, the
people in the industry are doing

show new supply at about 2.3%.

in 26, 2% in 27, and then further
decreases, but they're far enough out.

They're not really willing to put a
number on them from 2028 through 2030.

you're, seeing a fairly consistent,
I wouldn't say steep, but steady

decline in development activity
as rates begin to stabilize.

And that oversupply that came
out of COVID gets absorbed.

and if you're developing, like we do.

I certainly care what rates are
and I certainly care what occupancy

are occupancy numbers are when
we're leasing up a facility, I

don't give a darn about cap rates.

Um, and I don't really care.

Um, uh, it takes four years to,
to lease up a storage facility.

Brandon Giella: Yeah.

Right.

Paul Bennett: if, if we break
ground today, that facility

is not gonna be stabilized and
leased up for four years and.

So the continued decline in, in
development activity, the, the

strengthening of the rates all tell
me that in four years we're gonna

be sitting in a pretty good place.

Cap rates will compress again.

Um, and I think the values
will be, you know, I think

the values will be attractive.

Um, if you, like I said, if you, if you.

If you're buying something today, little
different story or if you bought it two

years ago, but as a developer, that four
year timeframe and, and what happens to

us if, if the market's a little slow,
is, it's not that it doesn't lease up,

it just takes us four and a half years
or five years to get to stabilization

where we can sell the property.

And the good news is, although that
does absorb a little bit of capital

to carry a property a little bit
longer than you may have projected.

Um, it's not a significant enough capital
to really materially impact the returns.

It'll lower the returns a little bit
if we have to hold a property for

five years instead of four years.

But generally speaking, that drag
on cash flow that a little bit

slower lease up causes, um, is not.

Doesn't have a profound impact on the,
on the terminal returns to, to investors.

So, um, you know, the, the storage market
is stabilizing and we're seeing that

happen right before our eyes in 2025.

And, and I think 26 through 30
looked like a really good timeframe

to be in the storage business.

So,

Brandon Giella: From, from a
developer perspective as well as

an investor perspective, right?

So if you're speaking to investors
and wanna summarize all these themes

where you've got multifamily, retail,
industrial office, hospitality and

storage, and, those are most of
which are either in the stable.

Or gathering momentum kind of phase,
this is a good time to be an investor.

Is that right?

what's, your overall take to, to, if
you were to talk to investors right now?

Paul Bennett: I think it's an
excellent time to be an investor,

whether you're, I, think the
timing, if you're buying an existing

property is a little more critical.

I.

and so that varies a little bit
between the sectors in terms

of where you are in the timing.

If you're developing,
I'm pretty comfortable.

I, think multifamily, is attractive.

I think it's a great space to be in.

I think self storage is attractive.

I think office.

Too risky right now.

I'm not ready for it.

I think industrials sitting
in a good place, right behind,

the, multifamily and storage.

and I, think retail didn't see
the, volatility up and down.

So I think it's a solid place to invest.

I don't think you're gonna see
the same returns that you'll see

from multifamily and storage.

but I think it's a solid place
to invest if that's, And they're

often, particularly if you're buying
an existing property, often very

attractive from an income standpoint
if you're an income oriented investor.

it's a product that provides attractive
cash on cash returns and has some

real intermediate to long-term
stability in that cash flow stream.

Brandon Giella: So I hear good news.

I.

Hear pretty, green
lights, so this is good.

Okay?

Paul Bennett: we're feeling, we're feeling
good about what's happening across the

market and excited to see our brethren
in the multifamily, uh, world get up

from the, you know, from their knees.

They got beat up a little
bit over the last few

Brandon Giella: Yes, yes.

Yes, well, the future is uncertain.

Um, but it seems really promising
and hopefully, you know, markets

are kind of stabilizing right now.

I know at least in the equity markets,
things are kind of up and down,

but, uh, I hear, I hear good things.

People are excited about the back
half of the year, so, um, so hopefully

that's the case in real estate for sure.

Paul Bennett: I, I think 2025 is a year
where everything kind of gets its legs

under it and, and, and is in the starting
blocks, and I think you'll see it.

Assuming there's some reduction in
interest rates and assuming something

doesn't happen on the geopolitical
stage that you don't see coming.

Uh, I think, I think now is a great
time to be looking at opportunities

and, um, and starting to deploy capital
and plan on, like we talked about, I.

I think in last week or the week
before, sort of spreading that

capital over a period of time,
you'll never hit the bottom Exactly.

But if you're invested in storage in
multifamily, and you do it consistently

over the next two years, across
multiple deals, I think you've hit

the time about as well as you could.

Brandon Giella: I love that
dollar cost averaging as they say.

So.

Okay, well, uh, I don't know about
you guys, but I'm gonna follow the

smart money of, uh, Paul Bennett
and see where we can go from here.

So Paul, I always leave our
conversations so encouraged and,

uh, this is, uh, not an exception.

So thank you so much for your wisdom.

I know you spent a long time pouring
over this data to, to help us out as

novices, as peons, you know, listening to.

So you kind of go
through all these things.

So appreciate your outlook and
your perspective as always, and

uh, we'll see you next time.

Paul Bennett: It is always fun, buddy.

Thanks.

Brandon Giella: Alright, man.

We'll see you.

Paul Bennett: Take care.