Matt Garibaldi, President of Storage Star

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About MATT GARIBALDI

Matt is the President of FollettUSA and Founder / President of Storage Star.  FollettUSA is a California-based boutique real estate firm investing in high quality income-producing properties with the goal of generating tax-efficient income, long-term equity capital appreciation, wealth preservation, and estate planning efficiency. FollettUSA invests primarily in two core assets classes — manufactured home communities and self-storage facilities — with a long track record of exceeding investor expectations by purchasing high quality assets that meet or exceed long-term performance forecasts.  Storage Star is a leading owner and operator of self-storage assets in the Western U.S. and Texas. Storage Star is a vibrant, growing company with ambitions to be one of the leading self-storage owner-operators in America.

 

Prior to joining FollettUSA and founding Storage Star, Matt Garibaldi was a Principal at American Infrastructure Funds (“AIM”), a $3.0B private equity firm located in the San Francisco Bay Area.  At AIM, Matt was instrumental in founding the firm’s agriculture, manufactured housing, and rail transportation infrastructure investments; and he co-managed the firm’s oil and gas, energy services, and operationally-intensive real asset investments.  Prior to joining AIM, Matt attended the Stanford Graduate School of Business where he focused on finance and entrepreneurship. Prior to Stanford, Matt worked at NGP Energy Capital Management where he evaluated investments in the energy, agriculture, and water industries and helped launch the firm’s agriculture and water investment strategy, NGP Global Adaptation Partners (n.k.a. Tillridge Global Agribusiness Partners). Prior to NGP, Matt worked at Archon Hospitality, the Goldman Sachs Real Estate Principal Investment Area (“REPIA”) platform for investing in and managing limited-service hotels. Matt began his career at Goldman Sachs as an analyst in the Investment Management Division.

 

Matt received his MBA from the Stanford Graduate School of Business and a BA in Economics from the University of Notre Dame.

 

 

Transcript:

Alan:

Can you share a little about your background?

 

Matt:

I grew up in Houston, Texas. I’m the oldest of four siblings. My dad is a real estate developer and always took a liking to the real estate business. My I kind of followed in my dad’s footsteps in many ways. My dad went to Notre Dame undergrad in Stanford Business School and I did something very similar so I following a similar path. So growing up I was always working for my dad’s you know companies in various various capacities and doing summer internships and construction right hand man effectively so grew up in and around the real estate business. always knew that I wanted to get into the real estate game for a very early age just always found it fascinating just walking properties with my with my dad.

Alan:

What brought you from Houston up to the Bay Area?

 

Matt:

I first worked for an investment bank, Goldman Sachs in their private wealth management arm in Chicago, which was a cool place to start my career. Because it was a fast paced trading desk type of atmosphere where you learn one, you have to have attention to detail very, very significant attention to detail. You have to walk by quickly or else you’re going to drowned. And so I learned to work very fast in my first job, but I kind of realized early on that private wealth wasn’t exactly what I wanted to do. Like I said, I grew up in around the real estate business and wanting to get into that industry. So I did an internal transfer at Goldman, and went to go work for the Whitehall fund which is a real estate private equity fund within the firm that no longer exists, but it was it was pretty active at the time, this was back from 2007-2008. Got the job moved to Dallas, which is where I met my wife, and worked for Whitehall for about two years, working in their limited service hotel investment platform. So it’s called our con hospitality. We owned around 350 limited service hotels limited service, meaning Courtyard by Marriott, Residence Inn Fairfield, you know, they don’t have a full food and beverage package. Just given the timing of when I joined that role, I rode the wave up and then rode the wave back down. And it was an interesting time to be in a learning capacity right out of undergrad, learn the power of leverage, the importance of understanding risk when you’re investing other people’s capital. I learned that firsthand effectively in the eye of the storm of the great recession. That was 2008-2009 when I was working in this role. And so like I said, rode it up, rode it down, decided is probably a pretty good time to go to business school and applied to a few business schools around the country and got into Stanford here locally. And that’s what brought me out of out to the Bay Area. Like I said, when I was in Dallas at the time, I met my wife, she moved out here with me, and we were fully anticipating moving back to Texas. And you know, the weather got a hold of us and the active lifestyle and ended up sticking around so we’re now Bay Area locals and really love it out here- raising our family here. We love it.

 

Alan:

So coming out of grad school, did you jump into your own business right off the bat? Did you continue on working for somebody else or what?

 

Matt:

Yeah, so I took my first role out of business school at a local investment firms called American infrastructure funds. The idea but allowed me to scratch my real estate itch a little bit and we invested in acid intensive businesses. Which real estate qualifies? So we started a few real estate companies and how I met my current business partner- Matt Follett, who’s the founder of Follett USA, is through that capacity. So at American infrastructure funds, we started a business together called inspire communities, which is a manufactured home Community Investment platform. And Matt was the CEO of that business. And so we built that into a portfolio of about 36 assets and sold it to Apollo Global Management, which is a private equity firm based out of New York, and that was of Halloween of 2017. Shortly before that Matt Follett   became good friends in the process and him and I decided to start a business together. And so I joined forces with Matt, two and half years ago, and about two years ago, we started Storage Star which is our current, self storage investment platform. So we currently own and manage 23 self storage facilities with 200 development, we’re always looking to buy more. So our hope is to get up to a portfolio of 100 assets. We’ll see where it goes. But that’s, that’s our goal right now.

 

Alan:

 

Welcome back and visiting here today with Matt Garibaldi. And man in the first segment, we talked about your insurance in the market into a Storage Star, which right now you’re serving as president. And if I understood it was 23 units under management?

 

Matt:

We have 23 facilities that are operating and then we have two other under development right now. And we’re predominantly located on the western United States and in Texas, yeah,

 

Alan:

Do you have a concentration, if any of the units into the Bay Area or are they just spread?

 

Matt:

yet we so just north of the bay area we own so we own ones in Manteca, Salida and  Modesto. So those are three facilities. woodland California, Vacaville Fairfield, Sacramento, Yuba City, Rancho Cordova, so we’re a bit north of the bay. It’s very rare to see a self storage facility come up for sale in the Bay Area because they are such good businesses folks like to hold them forever. Yeah. And so we would love to own more in the Bay Area. So but work yeah, we’re always looking

 

Alan:

so I want to delve into the process of how you evaluate do I buy the business? Do I not buy the business?

 

Matt:

Sure, no problem. So the first thing we look for are there enough people to support the business within the local trade area, and the trader is generally defined as either three or five mile radius from the facility called a 10 to 15 minute drive from the facility. It differs in some areas, traders a little larger. We have a facility in Cheyenne, Wyoming and we have a larger dryer, but we look to see Is there a population base that can support this facility and is specifically a facility of this size? And then once you see that there are there’s a population base that can support it you make an assessment is there or not? Is there too much storage in this market or new supply coming online? The big topic of the day in the industry is there’s just a lot of building of self-storage taking place today. The secret in some ways is out that self-storage is a great asset class because You have hundreds of tenants, you have a diversified tenant base, it’s a relatively low rental dollar amount. And so it’s where someone might be paying 1500 or $2,000 a month in rent and for their apartment or house, their storage units usually like 100 150 $200. So it’s a smaller dollar amount. You know, people are storing personal effects. And so they have an emotional connection oftentimes to the what’s in their storage unit. And so, you know, it’s, it’s, for that reason, among others, it’s a relatively stable business. So we’re looking for growing markets, large population and not too much supply. Like I said, the topic of the day today is there’s a lot of building going on. So we’re looking for locations where it’s hard to build new supply. And so those markets I’m named in the northern California area that we own facilities, generally have high barriers to entry. And we like that.

 

Alan:

When you’re valuing going into unit, those are something that you use in the back of the envelope of how to you know, it’s at the right price?

 

Matt:

 

Yeah. So for anything the markets gotten more competitive nowadays, right? interest rates are really low. That’s driven cap rates down by historical standards.

 

Alan:

What is the typical cap rate for storage?

 

Matt:

Yeah, so typical cap rate, well, Northern California 5%, something like that is very normal within the general Bay Area, Sacramento area. In Texas, it’s more, it’s probably 100 basis points higher so called 6%, six and a half percent. That’s a general rule of thumb. Sometimes it will pay a lower cap rate than that sometimes will pay a higher cap rate based on what the rents are relative to the market. So you know, we’ve purchased facilities in the recent past where the rents are verifiably 15-20% below market, we’d be willing to pay a lower cap rate because we know over the next six 12 months we can slowly bring rents up to market which will then result in a higher yield on our investment than the going end cap rate, and so we’re willing to take that risk when we see a good opportunity.

 

Alan:

I want to pick your brain a bit in your process of how you decide what you go through to acquire the next property. Do you do you typically buy existing facilities? Or do you develop things from the ground up?

 

Matt:

So we run the gamut of there’s effectively three buckets there’s development, there’s what’s called a CFO or Lisa deal, a certificate of occupancy or lease of deal. And then there’s also a stabilized property and we’ll buy all three. Some folks won’t touch the first two we’re not afraid- we look for good long-term Real Estate Investments. Really the simple rule of thumb is, am I fairly confident that in 10 years, that piece of real estate is going to be worth more than it is today? We’re long term holders. We’re not beholden to a private equity fund, which I think benefits us. Because I’m of the mindset that alpha, or excess returns can be created through time because there’s several pools of capital in the market today, where time dictates their process, and we try to be above that. So, you know, we have all three of those types of investment class, there’s sub classes, I guess, we have self-storage in our portfolio. So, we’re building two facilities today, one in Lincoln, California and another in Napa. Very high barrier to entry markets. We like our basis on our land is low so we’re very price per foot focused on the finished product of cost. And then on the CFO lease up facility. strategy, we own handful in Texas, there’s a reason for That Texas has a very fast-growing market. Cost of living is reasonable compared to California, great jobs, opportunities for folks who moved there to good place to raise a family, good schools, checks a lot of boxes. Texas is also a market that seems to because of its zoning. Catch the cycle early. And so there has been a ton of development in this. So, this cycle in Texas, particularly 456 years ago, and that’s all coming to market at the same time. And what’s that’s resulted in is a lot of new supply rates have fallen pretty low compared to historical and it allows someone like us with a long-term time horizon to come in and pay a fair value or below fair value for an asset and hold it for a long period of time to capture that upside. And so we’ve pursued that in earnest in Texas and we think that’s a good market for this sort of strategy. And then you know, the The stabilized assets, their coupon clippers and and we love that our cat our investors like cash flow. And we spend a lot of time looking for these sorts of facilities. Unfortunately, they’re just not that available. People don’t like to sell good assets that are kicking off substantial cash flow. So you don’t find as many of those today. But when we do find the one that we like, that checks the boxes I talked about earlier, there’s a strong population base, strong population growth. And it’s a market where I can see in 10 years that’s going to be substantially more valuable today than it is today. We’ll jump in and run pretty aggressively at facility. So as an example, we just bought a facility in Fairfield and another in Vacaville markets that we liked very much. We see the growth there and I have a fairly fairly confident feeling that in 10 years, those assets will be worth a lot more than they are today.

 

Alan:

Is there a certain amount of scale that is needed stated before you can justify a full time employee on site?

 

Matt:

So the there was a trend in the industry 20 years ago where when you build a self storage facility, you build up an apartment on site. Much of the management in the industry has moved towards REIT  professional manager. So cube smart extra space public storage, they all manage third party facilities. They don’t really love having a manager live on site. There’s a host of liability reasons for that. We own a mixed bag of facilities that have onsite apartments, we offer them up to our managers, sometimes they want to use it sometimes not we view that as a as a perk and not as a method of compensation if you will, we still pay people a fair wage. Some people view them as that that the apart onsite apartment is a type of compensation. We view it as a perk. There’s a big movement in the industry of moving towards kiosk which are unmanned facilities. We think that there’s a great place for that in the industry, particularly for smaller facilities called 30,000. net rentable square feet are smaller. Where we our portfolio consists mainly larger facilities. And we’re a high service company, we believe that storage is in many respects is a commodity in space that people are renting. However, service can make a difference between your space and someone else’s space. So we’re a high service, high touch company relative to the rest of the industry. And because of that, we hope we command a premium price. And so for that reason, we have all of our facilities with onsite manager individuals.

 

Alan:

When you’re around when a consumer is looking for a storage facility. In your opinion, what do you feel is some of the things that are that they should be looking for?

 

Matt:

Clean, safe and secure? That’s really the simple answer is is the facility well maintained because if it is, man, it’s closed. That’s usually an indication of the quality of the management and the attentiveness of the management. Safety. Obviously you don’t want, you know, somebody breaking into storage facilities and you want to indicate safety. You want to look, you know, are there cameras on nearly every corner of the facility? When you walk into the office Do you see TV screens with with a live feed of the camera that means someone’s constantly watching it right? And then safety and security just should be a table stakes that should be a given be you’d be surprised a lot of folks just take their eye off the ball and in break ins are fairly common in certain parts of the country. We try to mitigate that through having a robust security, presence and robust on site cameras.

 

Alan:

Do you take investors in?

 

Matt:

Yes, we do take investors we do we, we syndicate our investments, we invest our own money alongside each one of them. We invest solely on behalf of high net worth individuals and family foundations non institutional Investors really is the way we think about it because folks who one can take the tax benefits of owning real estate we view that very attractively and also don’t have the time horizon of a fund. We view that as a competitive advantage of ours as well. And so mostly high net worth individuals

 

Alan:

so Matt if someone wants more information on Storage Star, how would they contact you?

 

Matt:

So they can send me an email him MGaribaldi@fallottusa.com or Matt@StorageStar.com. They can also go to our website and there’s a Contact Us link there, they can get can reach out to us anytime. We’re always looking for new folks to meet, new investors and anyone looking for renting a storage unit. So reach out anytime.

 

 

 

 

 

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