Master the Basics: How Spartan Investment Group Built a Self Storage Empire

Scott Lewis (00:00)
Be the best at the basics. Make our customers feel like you care, right?

and actually care about them because a lot of times storage is in a tough time in somebody’s life, right? Death, dislocation, divorce, right? Most of the customers that are coming in are not exactly in the best parts of their life. So we need to deeply care about the customers and have a clean and safe facility. That’s it. And make it easy, like be easy to do business with. You’d be so surprised how hard it is to do business with people.

Cody Crabb (00:13)
Yeah

Yes.

Hello and welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel. Today we’ve got Scott Lewis, CEO of Spartan Investment Group in Denver. He’s focused exclusively on self storage with

a fully vertically integrated operation managing everything in-house. Scott, thanks so much for joining us today. I appreciate it.

Scott Lewis (02:22)
Thank you, Cody. Happy to be here.

Cody Crabb (02:23)
And may I just say you are wearing the most Colorado outfit that I think I’ve maybe ever seen in a good way. Like it could be on the poster for Colorado.

Scott Lewis (02:31)
This is the combo of the Colorado and finance bro vest, right? Like I’ve kind of blended both of them here in Denver.

Cody Crabb (02:36)
Yeah,

the only question is do you drive a Subaru?

Scott Lewis (02:41)
I don’t, I don’t. They do issue one, like when you move to the state, it’s automatically shipped to your house. So, but I got rid of mine long time ago.

Cody Crabb (02:43)
⁓ OK, well.

Gotcha,

gotcha. Okay, well thanks for joining us today. So just to kind of get a little bit of background, can you give us a quick overview of where you came from, how you got here, and what got you into this industry?

Scott Lewis (03:04)
Yeah, so, you know, as Cody mentioned, I’m the CEO of Spartan Investment Group. do self storage and that’s kind of where we focus and we are vertically integrated from property management, asset management, construction, the whole nine yards there. My path is a little non-traditional. I graduated from Michigan State, have degrees in chemistry and marketing, but I actually went into the biotech industry right out of school.

some pretty bad stuff happened at the top of that company and it’s, I’m kind of an integrity guy. didn’t like what I was seeing. So I did what any rational human being would do and I sold everything I owned and I joined the army at 27. So I four years of active duty, came out of there, jumped into the federal government in DC, got a really,

wide exposure to a lot of different domains of strategic planning, risk management, project management. And that kind of enabled me to take those tangential skill sets and start building kind of my real estate skill sets on the nights and weekends until Spartan grew to a point to where didn’t need the government anymore. That was probably about eight or nine years ago that we went full time and it’s been history from there.

Cody Crabb (04:10)
That is a wild set of origin story origin stories. It kind of sounded like origin story mad libs a little bit Like it just I was like I never knew what to expect in the next sentence How did kind of that random background help you? I mean, I know that nobody that has ever Gotten an education has never used it again I truly believe that and I would be curious to know like how I look at what points has that come into play for you?

Scott Lewis (04:17)
Yeah.

Yeah, so I also have a master’s degree in management and master’s certificates in project management. So like those are very, very helpful. And my marketing degree is obviously very, helpful. Not a lot of chemistry going on in this place, but understanding the scientific method and approaching experimentation correctly. know, a lot of people try to like put a bunch of stuff in the bowl and then say, it’s this. Well, that’s really not how you…

conduct experiments, need to hold your variables constant while you introduce one, or you need to hold your inputs constant while you introduce one new variable at a time, otherwise you don’t know what you’re doing. Right, so like that, and then the different skill sets that the federal government have given me a very, very broad range of…

of skill sets. And one of the questions you asked me is, do I have a co-founder? And yes, right, in a key aspect of growing and scaling any business is understanding your weaknesses and then filling them in with people that are much better than you at whatever you’re weak at. So where I bring a lot of the management skills onto the table, my weaknesses are probably networking and finances a little bit from a, from a accounting perspective and whatnot. So, you know, we have,

our accountants, our VPs of finance, our, like my partner is our, our chief investment officer. He’s probably one of the best networkers. Like I go into a crowded room, I’m there for three minutes and I’m like, I’m out. He’ll go in there and he’ll be there all night. Right? So just like really like understanding where you’re weak and then plugging those holes. And that, that broad range of experiences kind of coming up through the vastly different ranks. So there’s a lot of leadership and stuff in the army and some resilience with deploying to combat and that.

kind of stuff that’s really been helpful as we’ve grown Spartan.

Cody Crabb (07:02)
really interesting that, you I would have guessed that just because I feel like, you know, when you never know when certain parts of your life is you’re going to come back and kind of be like, hey, I actually have a little, a little experience here. So, okay. ⁓ You know, the weaknesses thing really stuck out to me what you just said about kind of filling your weaknesses. What’s another, do you have a story about

someone that really helped you. You mentioned the talking is not your forte. Do you have another example of someone that really took something off your plate that helped you out?

Scott Lewis (07:35)
Yeah, I mean, think the, you know, the kind of the underwriting, I’m not an Excel builder, right? So like bringing in folks that were really good in Excel that could build like complex models. That’s not my forte, right? Not at all.

So like having someone that could come in and do that for you. And now there’s a lot of plugins for the various AI systems out there. There’s some danger in that if you don’t know what you’re doing, you don’t know that it’s wrong. But really like getting somebody in to kind of help me with that, that was a big thing for us here.

that we’ve had folks come in and help us build those models. We know what the outcome wanted to be, but the actual formula is to get there to achieve the outcomes. Then that’s where we needed help building. And there’s a couple that we knew the answers to and built the model. And if the model produced the answers, we knew the formulas were working. So, but it was actually like building that. that’s the big thing is like, if you don’t know what you’re doing, you need to know just enough to see if it’s wrong. That’s kind of a big trip up that we’re seeing nowadays with some of the youngsters and using AI.

They don’t even know that it’s wrong because they don’t have the base case context.

Cody Crabb (08:37)
Yeah, and that’s kind of where the education part comes in. Because I feel like if there’s literally, the AI can be kind of a miracle for people that are working in any field. But you have to know what the output is. You have to know what the output should be in order to go, that’s wrong or that’s right. So I think that’s something that’s often missing in discussions about AI is like, it’s hallucinating. It might be hallucinating.

Scott Lewis (08:56)
Yep. Yep.

Cody Crabb (09:04)
and just giving you bad information. But if you have the education to know that, it kind of doesn’t matter. you know, yeah. So you know what I mean? Like as long as you know to kind of be skeptical and things and yeah. Well, I think that that’s even just that alone is a really good takeaway. Like that’s yeah. I mean, have you seen a lot of that in the industry or personally?

Scott Lewis (09:59)
Not a ton. We’ve seen there’s a term called work slop. It’s when like folks are using AI and it’s wrong or it’s just purely AI and they’re posting it. We kind of got ahead of that really early on and just said, Hey, like it’s not okay just to like cut and paste chat like stuff into a post. Like use it as a thought partner, but don’t use it as a substitute for you thinking. Cause if that’s the case, if you can substitute chat for you thinking, so can I.

Just for the record, which means I don’t have to you. So be careful. Yeah.

Cody Crabb (10:30)
I actually love that. That’s true. Because

that’s true. The whole point of using AI is to make you be able to be capable of more, not for you to do less. Yeah, I know what you mean. Yeah, so okay. When some numbers come across your desk, I’d be curious, what do you look at first? How do you know whether it’s even worth digging into?

Scott Lewis (10:38)
Yeah.

100%.

Cody Crabb (10:54)
to begin with, because that’s something that I think a lot of people struggle with is like, I could, maybe I, do I even, how far do pursue this? Like at what point do you see, you know, some things that may start to make you like, all right, hey, this is starting to look good for me.

Scott Lewis (11:08)
I mean, we’re at the scale now. I mean, we’re what would be considered a mid-tier operator.

You know, we have, depending on what cap rate you throw to it, we have somewhere between 800 to a billion dollars of assets under management, 86 properties. We’ve underwritten, you know, hundreds and thousands of deals. And it’s one of those things that you kind of see some basic numbers that come in and they’re different for every industry. In the self-storage industry, you know, rental rates is a key thing. And it’s not necessarily dissimilar to multifamily or any of the other ones. You know, if you see like $3 rents,

or whatever, it’s probably not a very viable deal because your ability to execute a business plan with rent growth and whatnot is going to be very, very constrained because likely your target demographic is probably income constrained on that. We look at unlevered yield. So what does the property yield with no debt if you just went to cash? If those numbers aren’t high enough, you’re not going to be able to hit your return metrics for your investors, so there’s no point even doing it.

We really focus on exit cap. It’s a very, very easy way for deals to look fantastic. Just knock off 50 basis points on an exit cap and you could be a hero. We don’t measure IRR.

If you’re a professional investor like Blackstone or something like that, and you’re looking at, well, you know, do I invest in this storage deal or do I do some currency fluctuations in Paraguay? Like IRR is a great metric. Our investors aren’t looking at that scale. And you can’t eat IRR. You can eat multiple and you can eat cash on cash. So for us, we really look at the equity multiple because sometimes we hold our deals for six years. Some are 10 years, some are five years, some are eight years.

We’re kind of all over the place because we don’t want to get caught in a cycle. We want to extend that timeline so we have flexibility there and people have flexibility. for the most part, people don’t care about getting their money back early. If you’re really late, they start to get wrapped around the axle a little bit more about it. So that’s kind of where we’re at.

Cody Crabb (12:59)
Yeah.

I feel like in real estate, especially there’s kind of mindset of like, this is a long-term play. Like most people aren’t, most people aren’t in real estate to kind of get a quick buck. So, I mean, maybe they are, but they’re not gonna. So ⁓ yeah, I know, I know what you mean. So I would love to talk about self storage a little bit. So how did you start to focus on self storage in the first place? It’s very specific. And what, what are some things that

Scott Lewis (13:14)
Hard to do. Yeah.

Cody Crabb (13:28)
people may not know or some pros and cons that are kind of maybe not as obvious to everybody.

Scott Lewis (14:15)
Yeah, when we started, we started in residential flipping. That’s a very, very difficult business to scale because you’re,

your all of your revenue is transactional. You never actually know when it’s going to show up. So it’s very hard to scale a business and hire people and things like that because you just don’t know if you can pay them. So we decided to start looking for commercial assets and we were new. We we didn’t have we were not coming out of the hedge fund world. We weren’t coming out of real estate, private equity or any of the other big management shops. So we knew we needed to figure out an asset class that gave us

some buffer to make mistakes and still be okay. We couldn’t move into a perfect market because we would just get crushed. There’s no way we could be aggressive because if we got it wrong, it could be game over, right? So when you looked at the commercial assets at the time and we moved to self storage in 2016.

In 2016, you had the big four. had multifamily, office, industrial and retail. Well, those are pretty perfected markets. Now you can segment those markets and segment them down to get a little bit of space. But for the most part, those are really established, very institutionalized markets. So we started to look at the alternatives inside of real estate. Things like mobile home parks, self-storage, car washes, whatever the true, the alt of alts, right?

you

And I had some experience building storage as a kid. My cousin built a few of them. And when I would come home from college, I’d go out there. So that’s kind of how we got into it. And we pivoted to that because at the time there was some institutional players in self storage in 2016, but nowhere it is today. So we had an opportunity to get in there and learn without just getting crushed by the big dogs that are everywhere. It was just a little bit less consolidated at that point.

As far as the storage market and from an investor’s perspective, there’s goods and bads and everything. We’re probably in a little bit of a headwind right now. Moving is a big deal for us. When people move, it generates a lot of demand for storage and the fact that everybody is stuck.

is really tough. But on the flip side, our leases are month to month. We have incredible like rental rate flexibility to move up and down with the market. And we don’t have any like large tenant risks. Even in multifamily, mean, most people are not going out and buying three and four hundred, three and four hundred unit multifamilies. That’s not what most people are doing, right? But for us, know, a three hundred or four hundred customer

facility it could be three or five million bucks.

So with that, you don’t have the concentration risk that you do with office or retail or industrial that if a major tenant moves out, like you’re in a hurt locker. With us, we don’t have that. Our major, our biggest problem right now is supply. You know, people going out and doing some pretty stupid things and building in markets that can’t support additional supply. And it’s because of just a lack of thorough feasibility and feasibility providers not wanting to say like, no, don’t do that, right? You rarely find a feasible.

report that says don’t build here, rarely do you find that and that’s a problem. That’s probably our number one problem.

Cody Crabb (17:20)
Yeah, feel like, yeah, well, anyway, let me just move on to this other question I’ve had since we started. What impact did COVID have on self-storage?

Scott Lewis (17:30)
I mean, it made it go bananas. Like our rental rates just shot through the roof. Yeah. I mean, everybody wanted the extra space in their house. So everybody wanted that, like the garage and turn it into a gym and everybody wanted that extra bedroom, you know, for their cousin that moved in or whatever. So, I mean, our, our rental rates. I mean, we were seeing 20, 30 % year over year rental growths in some of the facilities.

Cody Crabb (17:32)
Really?

Hmm.

just finally cleaning stuff out because they have time and yeah, there’s tons of stuff.

Scott Lewis (17:55)
I mean, just bananas and just leasing these things up, right? And unfortunately, that attracted a lot of the development side of the house, right? I mean, self storage is fantastic asset, right? It’s very sticky. It’s got the flexibility of hotels, but the stickiness of the long-term because customers rarely want to come and move a 10 by 30 unit. mean, like, right? Just think about who wants to pack up their crap and move.

Cody Crabb (18:18)
Thinking of my storage unit, like,

that’s a whole Saturday right there, yeah.

Scott Lewis (18:22)
Yeah.

Oh yeah. That’s a whole Saturday, right? And like, do I really want to do it? Like, eh, like I still like my stuff, right? And some people are using them for other means other than just storing their stuff. They’re using them to support their businesses or create an extra room in their house because they’re putting this stuff over there and they’re using the garage for a gym. Like that’s a great use for storage because our rents are cheaper than anybody’s square footage in their house. So people that are stuck that, you know, maybe a family is growing or something like that, when you got a bunch of crap in the garage, take that stuff out.

put it in a storage unit and turn the garage into something useful instead of just storing your crap in there. Go pay a hundred bucks a month at a unit that stuff you touch once a year and use your garage every day, right?

Cody Crabb (19:03)
Yeah, I think I need to tell it to my mom. ⁓ Yeah, she’s a well, but and like you said, I mean, it’s either going to it’s either going to be clutter here or clutter there. So might as well just make it clutter there. Yeah, good. That’s a good point. So all right. I love the idea that it’s kind of the flexibility of hotels, but, know, that’s not that doesn’t have all the problems the hotel does.

Scott Lewis (19:11)
100%.

Cody Crabb (19:23)
So yeah, you did a pretty good job giving me the pros and cons. I feel like I’m very much like not willing to jump into it right now. And I’m like, but I get that it would be really awesome. So that’s good. If I walk away from it thinking this is the perfect thing I’m gonna invest today, something is wrong. So with all this new supply coming in, what separates like a good storage operator from one…

that’s just not gonna do too well. Obviously location has something to do with it, but I would be curious to know what metrics you see are helping out.

Scott Lewis (19:55)
Yeah, from an ops perspective, it’s the basics. You know, it’s funny, have like, Spartan has this human performance coach that we’ve hired to come in and just help us like with like the way we think, the way we move, the way we eat, just so that we can, you know, try to.

create the healthiest environment we can here. And this particular person came from one of the like super secret squirrel like operator, like military operator groups, right? And I was talking to him one day and I was like, all right, man, we’re gonna go to the range. You’re gonna teach me how to like jump over barrels and shoot between my legs and this kind of stuff, right? Like all the like, he’s like, what are you talking about? You’re an idiot. I was like, what are you talking about? Like I’m gonna shoot behind my head, right? And he’s like, you’re a moron. Like none of that stuff’s true. He goes, I was like, well then what makes you guys so damn good?

He goes, we are the best at the basics. there’s four, the Army teaches four fundamentals in marksmanship. And he goes, we are the absolute best and we don’t ever make mistakes on the fundamentals.

And because of that, we always hit our targets. So I’ve driven that lesson home to my team. It’s just, guys, don’t worry about the whiz bang crap that you’re seeing at the trade shows. That’s just nonsense. Those are vendors selling you stuff.

Be the best at the basics. Make our customers feel like you care, right?

and actually care about them because a lot of times storage is in a tough time in somebody’s life, right? Death, dislocation, divorce, right? Most of the customers that are coming in are not exactly in the best parts of their life. So we need to deeply care about the customers and have a clean and safe facility. That’s it. And make it easy, like be easy to do business with. You’d be so surprised how hard it is to do business with people.

Cody Crabb (21:18)
Yeah

Yes.

Scott Lewis (21:37)
Right? Don’t make it hard to be paid. Just be excellent at the basics, which is customer service, clean and secure facilities. That’s it. And a lot of people fail at that.

Cody Crabb (21:42)
That is such good advice, yeah.

And I think that’s probably applicable to basically every, every asset you could possibly own. I mean, if you’re trying to rent it or sell it to somebody, obviously, like the better condition they have, but you know, the yeah, it’s just, makes perfect sense. well, this has been really interesting. Thanks so much for giving us such an ⁓ interesting look at this storage, storage world and, and kind of your, your world. So tell us a little bit more about,

Scott Lewis (21:59)
Yeah. Yep.

Cody Crabb (22:12)
you know, what you do, if people want to work with you, you know, what is that you kind of provide to the industry?

Scott Lewis (22:17)
So, we provide investment opportunities through Reg D 506C usually, So private placement offerings. At least right now, we are completely backed by retail network. We have 1,500 active investors. We’ve got about 15,000 on our list and we’ve raised about a half a billion dollars.

in equity from our retail network out there. So we provide opportunities for folks that, know, are folks like me and you that want to do these investments and are interested. And that’s mainly what we do. And then we go out and we call it find fun to finish. We find all of our own deals. We fund them through equity and debt. And then we go and finish them, whether it’s free up storage, which is our operating platform on the facility management side or Spartan

construction management if we’re building them. And then our asset management team takes it full cycle to manage the business plan and then eventually dispose, recap, or whatever we need to do.

Cody Crabb (23:11)
So where can they find you online?

Scott Lewis (23:13)
Spartan-Investors.com. We’ll get you signed up for the portal. We try to have a white glove approach.

and get a call scheduled with one of our investor relations managers to bring people into the portal, to have them walk through kind of the Spartan way, get them signed up, walk them through any particular deals that we have going on the time, answer questions about it, especially first time investors. We highly encourage folks to come in and talk and understand the various documents, the private placement memorandum, the subscription agreement, the operating agreement. And we always encourage investors like read these things.

contain a lot of information, especially if you’re a first time investor in a private placement, you got to know what you’re doing. That way if there’s stuff going right, if there’s stuff going wrong, that you kind of understand what’s going on and you understand what to expect, what not to expect, highly, highly encourage people to read all of the documents.

Cody Crabb (24:05)
Thanks so much. Yeah, that’s great resource. And thank you so much for giving us your time today, Scott. If you listeners got something out of this today, then please make sure that you follow, like, subscribe, comment, review all the things and make sure you don’t miss an episode so that you don’t miss another great conversation like this one with Scott. Thank you so much for all your insights today we’ll catch you later.