This week we are joined by Fernando Angelucci who has done $50mm in self-storage transactions in the last 3 years. He owns 600,000 square feet of storage and has accomplished all of this before the age of 30. Tune in to hear more.
Phone # to text: 630-480-8090
Email: firstname.lastname@example.org / Fernando@impactselfstorage.com
Welcome back everyone to the No BS Apartment Investing podcast. And today we have on the show, Fernando Angelucci. Welcome to the show, Fernando. Yeah. Thanks for having me. Yes, sir. So let's jump right into it. Do tell us a little more about yourself and what is that you do?
Yeah. So I'm a self-storage, syndicator, and developer. We invest in self-storage nationwide. We have three main verticals. The first is buying mom-and-pop-owned facilities, doing the heavy lift or the value add on that. Combining those into a portfolio of similar properties, and then either refinancing into the CMBS market or selling off to regional player. On the opposite side of the spectrum, we do ground-up developments. These are usually so that we can get more square footage. Under management, typically a hundred to 150,000 square feet, 10 to $15 million project costs. We usually sell them for twice that amount to REITs and private equity firms.
And then in the middle, we have a hybrid strategy that we started using pretty heavily during the pandemic, which is buying. Existing big box retail stores that have gone dormant and converting them into class-A storage, that allows us to drop our total project cost by about 30% compared to a ground of development.
And it also allows us to drop our construction time by anywhere between 25 to 50%. That is awesome. So I know in your bio and in a post that I was reading on Facebook, you done all of this before you turned 30, that is quite an accomplishment. Yeah. So, you know, I kind of go back a little bit. I started off in real estate when I was 22, maybe.
So right after college, I was working at a nine-to-five job. Didn't even last 13 months and went into real estate. I knew that's what I wanted to do when I was 16 years old. I read rich dad, poor dad, and that kind of changed the way I looked at making money and it really affected the trajectory of my life.
So it started off wholesaling, single-family homes, and we started flipping them, buying them to hold for rentals, leveled up into apartment buildings, did the same thing, you know, buy and hold a fix and flip. And I was just getting tired of dealing with tenants, dealing with tenant-friendly laws. The turnover costs, the vacancies, compressed cap rates what have you. So in 2018, between 2016 and 2018, I started selling off all my rental properties. And in August of 2018, I bought my first self-storage facility for just shy of a million dollars in an excerpt of Chicago, if you will, it's about two, two and a half hours from my house. That was the first deal that we did, learned kind of the ropes was in the business day to day.
And then after eight months, I decided, okay, this makes sense. Let's go into better states. So in the subsequent eight months, we bought another six properties, and then fast forward to today, we've transacted on a little, over a hundred million dollars in storage over the last three years. Nice. Again, congrats on that accomplishment.
So you said that you were tired of dealing with tenant-friendly laws, you know, all that good stuff. So what is, well, what is so different with self-storage that made that gravitate towards it compared to residential and multi-family outside of the tenant-friendly laws and other stuff like that.
Yeah. So, you know, rental housing is what I call habitation real estate, which means that someone's living in your asset. Well, as time has gone on, and laws from the west coast start spreading across the rest of the country, housing is starting to seem like a basic human, right. And it doesn't matter if the person can pay the rent or not.
As we've seen in the last, you know, this last 12 to 18 months with the pandemic and that's really unfair. 80 to 85% of the landlords in the United States. They're only a couple months ahead of the rent payments on their mortgage payments. So if you say, Hey, all tenants don't have to pay rent and you don't and you can't evict them.
Well, then how about those owners? You know, they're going to have to start. Making mortgage payments. If they're unable to do that, they're going to lose the home. It's going to hit their credit and the government didn't say, Hey, you don't have to pay your mortgages. Right? You don't have to pay your property taxes.
That was still a part of that. So you're seeing this kind of social socialization of rental housing or habitation real estate, which is a very dangerous trend in the United States for investors for multiple reasons. Right. If an investor knows that they're not gonna be able to get a return out of their buildings, what do you think's going to happen to the quality of the housing stock?
It's gonna start dropping landlords. Aren't gonna put any money into the rentals. I mean, look at states in the European Union that have already enacted laws like this over the past 10, 15 years. And the housing stock is just atrocious. I mean, no repairs, everything is distraught, everything's breaking down.
So that is, you know, rentals. You know, tenant-landlord law in self-storage. We don't deal with that. We don't have eviction laws. We don't have rental tenant-landlord laws. What we have is lien law or property law, which means the second you place your possessions. In one of my self-storage facilities, you're automatically granting me a lien against those possessions.
And if you don't pay that, I'm going to auction off those belongings. Within 30 to 45 days of you missing your payment. So there's no eight to 12 months of eviction proceedings with professional tenants that know how to play the system. There's no damage that they can cause here's a perfect example. I, I owned a property on the south side of Chicago, six, a six-unit property, one of the tenants.
From the second I bought the property, she stopped paying, it took me nine months, eight to nine months to get her legally evicted. She knew all the rules. We called her a professional tenant because she knew how to, you know, break certain things right before the inspector came, you know, pull out hardwired, smoke detectors and carbon monoxide and et cetera, all these things that would keep delaying the eviction date until we repaired them. Then when she left, when we finally got the rid of removal, When she left, it cost like $25,000 with the damage on one unit in a class D area. So that was like three years of profit that we lost right there because of one person didn't feel it was fair that she had to pay rent. Right. So I just got fed up with that.
I think this is, you know, This is not how investment should go. There's too much human factor that causes errors and causes headaches and causes loss of profitability and the self-storage space. We have none of that. You don't pay, we evict you, or we don't evict. We auction off your possessions, 30, 30, 45 days that the rent, the unit isn't making any cash, all the fees we get to charge on the auction, come back to us.
So we're actually really not losing any rent. And then the once someone's late, they can't even get into our facility there, their keypad code to get into the facility, that to then go to their locker, doesn't work. And then if they're somehow able to get through the automatic gate, they jump the gate. Or if they try to piggyback behind another car, then when they come to their unit, their units overlocked, with one of our locks, so they can't even get their possessions without becoming current.
And then, there's no way that they can cause any damage. Let's say they were able to get into the facility were somehow able to break through our lock, which is difficult. It takes about 15 minutes with an angle grinder to cut into one of our disc locks.
There wouldn't be any damage that you can cause. This entire self-storage facility is made out of concrete and steel. There's no drywall. There's no appliances to steal. There's no hardwood to scratch. No plumbing, deport quick set concrete down out of spite, you know, asked me how I know these are things that tenants do.
Right. So I got fed up with that. I sold all my habitation real estate started investing in storage and then I started finding all these like secondary factors of why I love storage. Much better leverage, much lower default rates, much higher average annual return compared to any other real estate asset class over the last 30 years, extremely recession resilient, multiple profit centers in one self-storage facility.
I mean, the list goes on. Wow. That is amazing. I've never known that the process that you with self-starters now, it makes it even more enticing. And I liked the comparison of, you know, rest residential and habit is very habitational in that there's a lot of emotional factors tied to it.
So I appreciate you sharing that. So what is the ground to entry into self-storage? How does one get started? Yeah. I mean, it's just like buying an apartment building, right? Yeah. You go out, we typically don't buy through brokers because the prices don't make sense. So we're direct to seller on all of our assets or the majority of our assets, 90 plus percent you'd run the numbers, just like you run a, an apartment deal.
Right? Look at income, look at expenses, see what the NOI is, and divided it by the type of cap rate that you'd like to buy at. You know, Self storage facilities come in all sizes. I've done as small as a hundred thousand dollars facility, it was 16 units and we've had as large as you know, 16 to $30 million portfolios of facilities.
Now the difference between storage and apartment buildings is that as an individual-specific asset, you can't really get that high evaluation. Right? You can go buy an apartment complex for a hundred million dollars easily. They want storage, really the largest facilities you'll find out there that are forcing.
There may be a hundred, 150,000 square feet. So you're looking at paying maybe 20 to 25 million max on an asset like that. We don't buy assets that big. We typically build them because cap rates are pretty compressed once you go out to the open market with brokers, you know, you're seeing cap rates in the four and a half to five and a half percent range.
Whereas when we go direct to seller, we're typically buying these in the nine-plus percent cap rate. Well, we can build on for around that amount, you know, eight and a half to two to 9% cap rate internal when we build them. Okay. So with that said like, have you ever encountered any scenarios while investing in self-storage that caught you by surprise or that went south. And how did you pivot that situation?
Sure. Yeah. Sure. So the nice thing about self-storage is not only the state laws are written so that all the liabilities placed on the customer and not on the owner, but then also the way the insurance policies work, all the liabilities placed on the customer, not the owner, unlike multi-family where it's vice, you know, it's flipped, all the liabilities on you as an owner.
So for example, If somebody wants to store their possessions in one of my facilities, number one, they have to have mandatory renter's insurance. If they do not have rent renters insurance, they're not allowed to rent. If they, you know, we give them a 30 day grace period where they say, Hey, you know, let me rent today.
Cause I have all my stuff in the truck. And then sometime in the next 30 days, I'll give you proof that I have renter's insurance. If they do not give me that proof of that. The least of states that I get to automatically go out and buy renter's insurance on their behalf. And not only do I get to go buy out that renter's insurance, I can usually keep 60 to 90% of the monthly premium as additional income for me because now I'm acting as an insurance broker for the insurance company.
Okay. Now let's say something happens and the property catches on fire or it's hit with a tornado what have you. Another clause that limits our liability and our leases state that they are only allowed to store up to $2,500 worth of possessions or a thousand dollars worth of possessions, depending on the size of the unit.
So now, if there is some type of claim that needs to be made, it does, it's not made against my insurance claim, it's made against their rental insurance, which keeps my premiums extremely low. Same thing when you look at the state laws, this compiled state statutes in almost all the states, we work in, the laws are extremely favorable to the owner. So we have no liability really for anything, unless it's through, you know, fraud or malfeasance of any kind. So that allows us to keep our costs extremely low compared to say, you know, owning a multifamily property. I live here in Chicago, so we get a lot of snow in this.
And that's no, it turns to ice and that can happen overnight. So if you don't have somebody scheduled to go clear that snow, like as it's snowing and it turns ice and someone just happens to fall, you know, on the sidewalk in front of your house, even if it's not a tenant of yours, you are now liable and you have to pay out that insurance claim.
That's not the case with storage. The laws are written in our favor. Nice. Man, you're making this self-storage thing sound very enticing now and I know it's the hot thing topic nowadays and in our market now, especially with all the issues that you mentioned in with apartments.
So Evan, I appreciate you sharing that. So, what is the biggest failures that you've learned from when it comes to self-storage? If and biggest what failure. Oh, okay. Yeah. I mean, it just depends on like any business you need to hire good people. The cost of a bad hire is usually five to six times that person's annual salary, not only in lost dollars, but lost opportunity, time,
all of these things kind of get robbed from you. So the key is if you're going to have a facility that's manned, most of ours are unmanned and you make sure you're hiring very good people. They can trust because they're going to be transacting on your behalf. Not only they are the face of your company, the first point of competent contact with the public, we need to make sure that they take that seriously, but they're also dealing with money.
So anytime somebody has money changing through their hands, there's the potential for. For fraud. So you've gotta be very careful with who you're hiring. I've had some very interesting situations, nothing kind of catastrophic like you'd find in multi-family. But one time we had somebody that had a unit and during the winter, there was some type of clearance sale on a bunch of meats.
So they bought like hundreds of pounds of red meat and put it in their storage locker, and then they forgot about it. So when spring came around and started thawing out and. Our manager thought there was a dead body in our facility. So we had to call the cops. They brought the hazmat team, the dogs identified the unit.
We opened the unit and luckily to our surprise, it wasn't a dead body. It was just like 150 pounds of rotting red meats, which is a terrible smell. But, you know, that's, that's the kind of stories that, that we have. There's really nothing that occurs. Another situation I had was somebody in one of my facilities,
somebody had a car parked on our property lot line and that car caught on fire and it burned a little bit of the siding of one of our facilities. So we had to change that out, but that's really it. That's what insurance is for, right. This covers it. Correct. It's interesting. When you look at the returns.
So first, if you look at just the risk, right, the downside. If you look at 2000 to 2000 or 2007 to 2009, the S and P dropped 22%. Multi-family did a little bit better on a REIT level. They only lost about 7%. Self-storage lost about three and a half percent. So lowest loss in recession. That's why everyone calls it a recession resilient asset.
Typically people are in transition during recessions and most customers that use storage are also in transition. So when people are downsizing or moving for a new job or moving in with somebody, you know, they're going to need additional storage that makes it very recession resilient. So then people say, well, okay, if it's, if it does so well
in recessions and has such good downside risk mitigation, that must means that the returns are not that good as well. And that's not the case. It turns out self-storage creates asymmetrical returns based on risk profile. So if you look at the last 30 years, single-family, multifamily returned, you know, 13% average, annual return compared to say the S and P 500, that was returning about seven and a half percent.
So that did really well, right. It almost doubled the S and P, but then when you look at self-storage, it returned about 17 and a half. Now 17 to 13 or 14, doesn't seem like a big difference, right? That 4% doesn't seem like a huge difference, but you got to realize that's 4% compounding year over year, over 30 years.
So for example, if you had a hundred thousand dollars to invest in the early 1990s, and you put into the S and P 500, you'd have roughly half a million dollars today. If you put that same a hundred thousand dollars into apartment buildings, you'd have about $1.7 million today. So a much better return than S and P 500.
If you use that same hundred thousand dollars invested in the early 1990s into self-storage, you would have roughly $4.1 million today. So that 4% compounding doubled the return that you'd get in multi-family compared to self-storage. That's another reason why we went into it. Because it has a very low default rate,
banks love us, especially in times of turmoil like this most recent pandemic. During the pandemic, 1700 CMBS loans were made in the first three-quarters of the pandemic to self-storage investors. Only three of those loans were more than the 30 days delinquent. At the same time, if you look at all the CMBS loans that were made to multifamily investors, they were defaulting at a rate of 1800% higher, 18 times the default rate of self-storage, just to show you another data point on recessions, right?
And now storage does much better than multi-family. So during that time, when banks are fearful and don't know where to place their capital and they have properties defaulting, like we saw in the office space, medical, some lower-class multifamily as well, they want to shift assets from their books into
properties that are more recession resilient. And the way they shift that is by creating demand. The easiest way for a bank to create demand is to give really good terms and really low-interest rates. So for example, in June of 2020, which is like peak roaring pandemic, in addition to all the PPP loans that the banks had to make, it was a nightmare to get a loan.
Bankers wouldn't even call you back. But during that time, I was getting some of the best loans I've ever had on the self-storage space. I had a ground-up development of a $20 million self-storage facility. So ground up, super risky, right compared to existing facility. They gave us a 80% loan to cost,
we got three years interest only, and it was at 4% interest. And then after the three years, it converted into another three-year balloon on a 25 year AM. Tell me where you can get loans like that for multi-family in the middle of the pandemic. No, one's going to do it. And then in addition to that, so storage is also considered.
a business, now it's not only real estate, it's also a business. So we qualify for SBA financing. So the small business administration financing, which we can get 90% loan to cost and it's on a 25 year fully amortizing loan. You know, typically when you go get multi-family loan, Especially on value, add deals.
You're looking at a five-year balloon, maybe on a 20 year amortization. So they get a 25 year fully am deal. I mean, that's super rare, especially at that leverage point 90% loan to cost, just to show you how the banks think about the risk of our asset classes. I said, those are some interesting, fun facts that I definitely did not know.
And I'm sure a lot of people would definitely appreciate you sharing those as well, to know that self-storage is very recent recession, proof and resistant recession-proof and resilient as well. Now with that said like, what are some metrics that you look for when you're looking at self-storage and acquiring some?
Yeah. So if we're acquiring existing facilities, I'm going to look at two main metrics. I'm going to look at cap rate, but to a lesser extent, I'll look more at gross income. And then I'll also look at the square footage of the net rentable square footage of the facility to break it down, and what is my cost per square foot that I'm buying.
So if it's an existing facility, I could typically like, for example, drive up class C value-add deals. I can build these for 45 to 60 bucks a foot. So if I can buy them for less than replacement cost, I'm already doing well. Typically we're looking for deals that we can get to a 10 plus percent cap rate within 12 months.
Our average acquisition cap rate across our entire portfolio right now is about a 9.3% day one. And then we are usually able to value add two to 300 basis points above that. If I'm going to be looking at ground-up developments, then I'm looking at, you know, population metrics, demographics. I'm also going to be looking at the supply in the area.
What are other competitors? What do they have online? How many square feet, what is the population? And what is the ratio of the population that can absorb all of that? We do a competitor analysis or secret shop our competitors to see what occupancy rates they're at! In self-storage.
90% occupancy is considered stabilized. Anything above that. That means that you're not charging high enough street rates, anything below. That means that you need to work on your marketing. So if we go into a market and we see that all the competitors are at 90 to a hundred percent occupancy with waitlists, there is pent up demand prices are through the roof,
they're higher than national average, that's going to be a very good area for us to build storage. Awesome. I appreciate you sharing that. So $50 million, 600 square feet in storage again, all before 30, like what do you attribute this to your success? Like what led you to being that successful? Yeah, so I'm a big fan of systems and making sure that we have processes in the entire company because
most entrepreneurs out there, they start as a one-man team. And then as they start expanding, they may start bringing in a couple, you know, employees to help out, but they start bringing in the employees before they systematize their business, so the key to being a business owner is getting everything out of your own brain and onto paper and into videos so that if you get hit by a bus tomorrow, your business can continue without skipping a beat.
And that's the biggest mistake I see most entrepreneurs making today. So you need to systematize your business. There's a great book that I recommend people are serious about going down this path, it's called traction by Gino Wickman. It's a similar to the E-Myth, but it has very actionable items on how to run your business with a system.
That's number one. Number two is partnerships and thought leadership. So by going on podcasts and writing books and speaking at these conferences, you know, ISS, SSA, self-storage, mastermind groups, general real estate mastermind groups, and just spreading the gospel of self-storage. People are attracted to you and start bringing multiple things.
They bring capital, they bring partnership opportunities, they bring lenders. So these are all the things that has helped substantially for us over the last three years, the second we started teaching people about self-storage. We don't charge anything, you know, everything's free education. I'm not a fan of charging for education.
So we put all this free content out there on how to get started in self storage, how to underwrite market to them, you know, do acquisitions, management, value add, how to do syndications, that has attracted a lot of people to us. So as we were doing deals with their own capital, from selling off all of our habitation real estate, got to the point where we started doing so many deals that I ran out of money.
And then I started having, you know, friends and family saying, hey, so I see you're doing really well in storage. I'd love to get involved instead, well, let me figure out how to do that. So spoke with syndication attorneys, started setting up these PPMS, private placement memorandum, getting friends and family into our deals.
And then as we exited out of those deals with great results, we projected those results to the internet so they could see how we'd done. And then now we started getting secondary and tertiary spheres of investors coming in. People that don't necessarily know me. You know, usually when you begin raising capital, you raise capital from people that know like, and trust you.
That's usually friends and family, but then once you start getting success with those people, then friends of friends and friends of family start wanting to invest because they hear about what you're doing. And then once you get even a larger track record, then you can start pulling in people that don't know you or don't know the people that you've invested with at all.
And that's just based off of track record and pushing it out there to the internet, just so they can see what you're doing. And you gotta be very careful, you know, always make sure that you're setting up a syndication. If you don't know what a syndication is, go Google the Howey test. H O W E Y. It's a four-question test that was set up by the Supreme court.
If you answer yes, to all of those questions, you technically have an equity on your hands or a syndication. And if you do not file with the sec, you are breaking laws that can put you behind bars for 30 plus years. So once we started, you know, first we started with 506b as in beta, 506 beta or Bravo
syndications, which allows you to take non-accredited investor up to 35 non-accredited investors, but you cannot generally solicit at all right. You can't. You can only tell people that you have a previous substantial relationship with. Once you start building up a track record with those, those people, then you can move over to 506c or 506 Charlie
which allows you to generally solicit, but you're only able to take accredited investors. And if your listeners don't know, an accredited investor is someone that either makes $200,000 a year for the last two years or 300,000, if they're married or has a $1 million net worth excluding their personal residence.
So if you hit that, those two metrics or one of those two metrics, you aren't a credit investor and you can invest in 506c. So once we started opening up 506c syndications that we've already built up two years of this education platform on the internet, deals just started flowing in, I mean, last Thursday.
So today is what Tuesday? So last Thursday I opened up a syndication 506c, sent out an email blast to my list of investors at 9:00 AM. And by 7:00 PM that afternoon, I had $1.7 million of commitments for a $1.5 million raise, right. So we over raised in one day and that's because of constantly, you know, offering education it's the ratio is nine parts free education or something
that's going to give value to your audience and then one part selling of any kind, you know, you want to always lead with construct contribution. That is powerful. So what would you say is the biggest surprise you found in your success as a self-storage owner? Yeah, I didn't realize how quickly it would scale. If you look at I'm a big goal setter, I like to write down my goals every year and save them like a look back into them.
You know, when I first started this business three years ago, We were thinking about having very, you know, at now what seems like modest growth at the time, it seemed pretty aggressive. But what people don't realize is in real estate, especially when you're using good leverage and you're investing in heavily cashflowing properties, things don't grow linearly, you know, and it's hard for us to see that because our brains
are kind of programmed to think in a linear fashion, but because of the compounding effect, especially with the cashflow and the good leverage, what really happens is things grow exponentially. And so to go from zero to a hundred million dollars in storage in three years has been extremely surprising to me.
I thought I was just going to be just breaking, you know, the $25 million threshold this year, and we've already, you know, quadrupled that goal. That is awesome, man. So with that said we're coming to the close of our interview here, what's next up for you, for your company as the self-storage Renaissance man?
Yeah. So, you know, based on that book traction, we do a lot of goal setting, especially long-term goal setting. So our 10-year goal is to be a top 20 operator to have roughly eight and a half a million square feet of storage. They'll put us at roughly a billion-dollar valuation. So that's the goal that we're reaching for right now.
We're one 10th of the way there, but again, things were exponentially. Linearly. So, I'm assuming that we'll see an increase in trajectory as we get to that point. Awesome. I'm definitely looking forward to following that journey and seeing that success for sure. Final question for you, Fernando. What tips would you say you would provide the people who are considering entering into real estate space, especially on the self storage side.
Yeah. You know, get educated. Number one, you know, check our social media out. We have a bunch of tips and tricks. Reach out to me directly. I can send you, I've done like 10 hours of videos, which is kind of like a crash course on self-storage investing. So you can, you can reach out to me. Just send it.
My email is email@example.com. You can also reach me at Fernando@impactselfstorage.com as well. And the biggest thing is just get out there. Right? Don't get analysis paralysis that happens to a lot of people. I was an engineer in a previous life, so I know what it's like to be shocked by numbers and just never take action.
Just, you know, give me a call. If you have a deal that you're looking, run it by me real quick. And who knows potentially I'll buy it off you or we can partner as an equity source, or if maybe that seems super hard for you and you don't want to do it yourself and you just have a pile of cash sitting around or an open balance sheet that you can guarantee loans with,
you know, give me a call and we can work that way. Right? I'll give you my cell phone number. Its area code 630-480-8090. That's my real number. Feel free to text or call me I'll answer usually within 24hrs. Awesome man, guys, as you know, I don't bring people on that talk fluff.
I want the real on the show. So I definitely will take advantage of that offer here and definitely learn more about self-storage. With that said, Fernando, I appreciate you man for jumping on the show. Thank you for sharing your wisdom. Yeah, we'll definitely touch base and to all our listeners, make sure you subscribe and make sure you take the opportunity to reach out to Fernando and just ask a question and reach out to him.
All his information will definitely be in the show notes and with that, we bid everyone adieu, until next time, take care.
Self Storage Renaissance Man
He has done $50mm in self storage transactions in the last 3 years.
He owns 600,000 square feet of storage
He did all of this before he turned 30
Marc Cesar is joined by special guest host Brandon Speer and is placed on the hot seat. This episode will shed light on who Marc Cesar is, his journey in Real Estate, how he got into Apartment Investing, his purpose …