Unconventional Real Estate Investments: Masters in Business with Bob Moser

Barry speaks with Bob Moser, Owner, Principal and CEO at Prime Group. They discuss his early career in real estate and his current holdings. They focus on his investments in self-storage assets and how non-traditional real estate is essential to his investment strategy. Barry and Bob also discuss how interest rates and the change in homeowner age impact commercial real estate. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

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  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:44Barry Ritholtz?

  This week on the podcast, what a fascinating conversation. Bob Moser is founder and CEO of Prime Group Holdings. They're the largest privately held self-storage owner, operator, investor in the country. Fascinating conversation, started acquiring properties in college, eventually started doing RVs and mobile homes, just really fascinating methodology of identifying undervalued properties. I thought the conversation was fascinating, and I think you will also. With no further ado, Bob Moser of Prime Group Holdings.

• 3:24Speaker 04

  Thanks for having me.

• 3:25Barry Ritholtz?

  So let's start out with your background. Bachelor's with honors in economics from Union College.

• 3:31Speaker 04

  Yes, sir.

• 3:32Barry Ritholtz?

  What was the original career plan?

• 3:34Speaker 04

  To tell you the truth, it was always real estate. So I've always had an affinity for real estate.

• 3:39Barry Ritholtz?

  Really?

• 3:39Speaker 04

  My mom tells the story that when I was like 14 or 15, she'd drop me off at the local real estate broker's office and I would drive them nuts for a couple of hours. And it was either that or just to get rid of me, out of her hair probably. But I always had it, got my real estate license before college. I got my brokerage license while at college and actually started the business basically my sophomore, junior year while at Union.

• 4:02Barry Ritholtz?

  Wow, that's amazing. So your college thesis focused on how to value income-producing real estate investments by comparing demand and value. Like, so you really knew exactly what you wanted to do by your senior year. What was the outcome of that college thesis?

• 4:19Speaker 04

  It's a good question. So it was on the valuation of income-producing properties using hedonic and non-hedonic regression analysis.

• 4:26Barry Ritholtz?

  So when we say hedonic, you're adjusting for quality and location, attributes of the property, taking away basically the revenue stream, what else adds value to the asset.

• 4:36Speaker 04

  And I was really hyper-focused on fragmented. Real estate assets. So basically, every real estate asset, when you look at it, goes through the same life cycle. When they're originally owned, developed, managed by local, regional developers, then over time, the larger groups come in and consolidate. So I was looking for that reflection point, when that consolidation starts. And I was focused back then in college on the thesis for manufactured housing communities. And when you're a college student, you know, people pick up the phone when you call, because they're always trying to help somebody out. And I was very fortunate to speak to Sam Zell, and some other, obviously, leaders in the real estate business. And they gave me some great insight. And one of the ones he said to me was that there's a lot of buyers, but there's not much product out there. You have to go out

• 5:19Speaker 04

  and find product for people. If you're going to be a good real estate investor, you have to have the ability to find the assets. So I decided to start a company in college to facilitate that transaction. Obviously, I didn't have any money. My dad was a retired New York City detective. My mom was a teacher's aide, so I didn't grow up on any wealth. But I figured out that if I could find good product, there was a numerous amount of buyers to buy it. And I did this by using the Freedom Information Act of New York, and then various other states, where I figured out that I could track all real estate asset classes using the same common denominator of water and sewer permitting. So I went down to Albany, and I made my request. And Union was

• 6:01Speaker 04

  trimester. So I had these big gaps off around Thanksgiving to New Year's. And one day, UPS knocked at my door. And I had converted my parents' upstairs bedroom to my corporate office, like any kind of broke on your mirror would do. And he's like, and handed me a box. I'm like, oh, there's my real estate information. And he's like, actually, that truck out there is. I had boxes and boxes of the old DOS printouts of every self-storage facility, every mobile home park, every RV park, Marina, multifamily.

• 6:33Barry Ritholtz?

  Just so some of the younger listeners can appreciate this, forget AI. This is really before there was any sort of usable internet, where you could say, hey, let me scan NY.gov and find all the real estate permitting. This is physical paper stored in physical office buildings and file cabinets.

• 6:55Speaker 04

  I had a pay per page on the printout.

• 6:57Barry Ritholtz?

  And what did that cost and how long ago was this?

• 7:00Speaker 04

  So this was back in 97, 96, 97. It probably cost me a couple hundred dollars, which I really didn't have as a college student. But I realized quickly that that information was the key to finding assets. And what I would do is I would systematically go through these lists, basically county by county, asset type by asset type, identifying the institutional quality assets that were still owned by mom and pops or non-institutional investors. And then I would do a deep dive on those assets. I would call and get the rent. I would call the tax assessor to get the real estate taxes. My goal was to know more about the real estate than the owner did by the time I called them on the phone to see if they'd be interested in selling. And then I would continually call them every 30 to 45 days after that until they became a seller.

• 7:45Barry Ritholtz?

  Huh, that's unbelievable. So that's what led you to unconventional and overlooked segments? You mentioned marinas and RV parks and other things like that, manufactured homes. How long did it take you before you managed to acquire your first property?

• 8:03Speaker 04

  So there was a, I acquired my first property shortly after college. And what happened was there was a mobile home park in Streetsboro, Ohio. It was actually called Camelot Village. Again, a guy named Mike Duffy owned it. And I used to call Mr. Duffy probably every 30 days to see if he would sell his asset. And one day I finally got him to sell and I made a nice fee on the transaction. But I still needed a little bit more. And the year I graduated, my mom took a home equity loan against the family house.

• 8:32Barry Ritholtz?

  Is that how you financed this acquisition?

• 8:34Speaker 04

  That's how I financed my first acquisition. So before that, I was facilitating transactions, making fees, almost like a broker, but not a listing broker. And then the first asset I bought was when my, my parents took a home equity loan.

• 8:47Barry Ritholtz?

  So if, and you mentioned you got your real estate license in college. How are you finding buyers for these sort of unconventional properties? Are you going to the big institutions and saying, hey, I have a property that fits into your portfolio?

• 9:02Speaker 04

  Now, what I actually did was I had these lists, obviously that I got from the FOIL request, and I kept on seeing the same names show up.

• 9:09Barry Ritholtz?

  As buyers or sellers?

• 9:10Speaker 04

  That were owners.

• 9:11Barry Ritholtz?

  Okay.

• 9:12Speaker 04

  So if I knew they owned five assets in that particular region, I thought, hey, if I develop one or I get a relationship with a seller that would sell, I would bring it to that group.

• 9:19Barry Ritholtz?

  You knew where to bring it, right?

• 9:20Speaker 04

  100%.

• 9:21Barry Ritholtz?

  Huh, really, really quite fascinating. And so, when did you found your own real estate brokerage firm?

• 9:28Speaker 04

  So that was basically in college.

• 9:30Barry Ritholtz?

  That was in college?

• 9:31Speaker 04

  That was in college. I became a real estate broker. Before college, I was a licensed salesperson. And then you have to have X amount of hours under your belt before you become a brokerage. And I got my brokerage license in 97.

• 9:43Barry Ritholtz?

  So how long did you do that as a, um, as a broker rather than an investor? Or they kinda ran parallel paths?

• 9:50Speaker 04

  No, so I was basically working exclusively for generating fees from like 97 to 2000-ish, 2001. I started buying my first asset around 2, 99 going into 2000. Obviously, the first one I bought, uh, it took me a while, obviously, to give up the transactional side until I could support myself on owning assets.

• 10:09Barry Ritholtz?

  So you ramp up various assets until 2013 when you start Prime Group? Was that the path?

• 10:15Speaker 04

  So what I did was, so my mom took the home equity loan my parents did against their home. Uh, the first asset I bought, actually, I had sold to that gentleman 10 months prior. And I called him up and I said, "Hey, uh, you know, Wayne, I sold you this property. It was on Cape Cod. Uh, would you be interested in selling it?" And he, I sold it to him for 3 million. He ended up selling it to me for 5 million.

• 10:36Barry Ritholtz?

  Wow.

• 10:36Speaker 04

  Uh, 10 months later. And then I moved up to Cape Cod and I actually ran the asset for the first two years to see how the business worked. Cause I didn't want to be that owner that would tell people what to do without actually being able to do it themselves. And then I bought my second property and then I bought my third. And then by 2005, August 12th, 2005, I had a large liquidity event. I sold a group of assets to Sam Zell. Uh, that's when he converted MHC, which was manufactured housing communities, his REIT, to equity lifestyle communities. And he started to focus on RV parks. So on that date, I sold him roughly five assets back then, which provided a substantial amount of liquidity to myself. And I went out and did a bunch of, that's when I really started to build the portfolio.

• 11:21Barry Ritholtz?

  So, so I want to draw a line. So you're a college kid randomly calling big real estate investors.

• 11:29Barry Ritholtz?

  Including Sam Zell, who took your phone call?

• 11:32Speaker 04

  Took my phone call.

• 11:32Barry Ritholtz?

  And you had a long conversation with him?

• 11:34Speaker 04

  I did, I did.

• 11:35Barry Ritholtz?

  And so, how many years later, is it like, "Hey, Sam, it's me, Bob. Do you remember me? I have some assets for you."

• 11:42Speaker 04

  It was funny when you say that, because when I was dealing with the CEO, there's a CEO at the time, I always wondered, because I never really spoke to him then after. So, I wondered if he'd actually put two and two together, and I'm sure he did. But it was, it was a really interesting transaction. You know, it was, the RV world was an interesting business, the RV parks. Basically, I was the first one to really use securitized financing in the RV park world. It hadn't been really done prior. So, it was, it was an interesting time.

• 12:09Barry Ritholtz?

  So, now you have a liquidity event, you're tapping into Wall Street securitization or the fund this. How, at what point do you say, "Oh, there's a ready source of capital. I could just put a roll-up strategy together and run all of these properties more efficiently than mom and pops can do." Every one of these would have to have a separate accounting and a separate tax filing and all that stuff. You centralize that, and suddenly, it's productive and efficient.

• 12:39Speaker 04

  Hundred percent. The, what I, so, basically, from, let's say, 2000 through 2005, 2006, I was acquiring a lot of mobile home RV parks. I also owned shopping centers, a little bit of everything. It was a pretty diversified portfolio. And what really transitioned to me to become an asset specialist, which we are now, was how well self-storage was doing during the first financial crisis. I was doing a year-end portfolio review in around 2007, 2008, and the self-storage assets were a smaller part of my portfolio back then, but they were outperforming everything else at that time. It wasn't like they were going, you know, straight up, but they were so defensive, and they were doing so well when all these other assets were getting beat up.

• 13:21Speaker 04

  And I decided at that point to become an asset specialist, singularly focus on self-storage. So, I sold off, over the next few years, I sold off the rest of the mobile home and RV parks. I had multifamily that went to third-party management. And from that time forward, I continued just to consolidate. Self-storage. This was on my own balance sheet at this time, and then I started the commingled fund business around 2014. So from basically 2007, 2008 through 2014, I was using my own capital or in-house capital to acquire these assets.

• 13:53Barry Ritholtz?

  So I'm curious, why would self-storage do well during the financial crisis? Was it literally people losing their homes? They had to figure out where all their stuff had to go? Or what was happening in that period that made that such a standout performer?

• 14:10Speaker 04

  I would say it was more the defensive nature of it, where these other assets were decreasing dramatically. Storage was holding its own. And it's need-based real estate. I do not buy aspirational real estate. I think that's where a lot of people get in trouble. I buy real estate that people need for all different economic cycles. And that's what self-storage is. You know, it's upgrades, downgrades, death, divorce. All of those types of life cycles or that happens in life creates a need for storage.

• 14:37Barry Ritholtz?

  It seems like you are in a variety of different regions, everywhere from Saratoga to Springs to Chelsea here in New York City. How do your underwriting assumptions differ relative to is this urban, is this suburban, is it ex-urban, is it out in the sticks? How do you look at these different spaces? Obviously, valuations differ and rents differ. What's the thought process?

• 15:05Speaker 04

  So we truly, obviously, real estate, and that's not cliche, but it's location, location, location. So if you look at our portfolio, it basically, you take the United States and it looks like a U. So we're up and down the coasts. We're, right now, we don't have exposure in Texas. And the reason why is that there's a lot of open zoning in Texas, and one of our major requirements is barriers to entry. And the reason why we're along coastlines and then we're up, picking up in the mountain cities, out in like Utah and Colorado, is that there's a barrier, that's a natural barrier, keeping the population tight to a nucleus. So we want to be in predictable downtown retail corridors when we're choosing the asset. So that's the first glance over deciding where we're going to buy. Then it goes down to what is the supply?

• 15:49Speaker 04

  It's going to constrain the supply in that particular market because like any other type of real estate, there's always areas that are oversupplied and the key is finding these areas that are undersupplied. When I was first doing this with paper, it was a lot of obviously, you know, calling on the phone, calling the assessor, feeling the market out, visiting. Now we have built very sophisticated software that helps us pre-identify these areas that we should be buying, not even the area, the exact asset we should be buying, even though it's not for sale. So we built out this program where it basically, I can put in our buy box and it populates out of the 60,000 self-storage facilities in the country, the ones we should go after, even though they're not for sale. And then what we have is our deal teams, which are a group of roughly three dozen people

• 16:33Speaker 04

  internally, that we allocate the deals that fit our criteria to, and then they continue to call and visit those owners until we convert them to sellers. So we truly buy everything off-market and it's 100% organically originated.

• 16:46Barry Ritholtz?

  Huh, really, really fascinating. Coming up, we continue our conversation with Bob Moser, CEO of Prime Group Holdings, discussing the prime storage business. I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.

• 17:08Speaker 00

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• 17:46Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 18:28Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 19:11Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Bob Moser. He is the CEO of Prime Group Holdings, specializing in privately-held self-storage commercial real estate. The firm has acquired over $10 billion in real estate assets across 350 locations, 28 states, Canada, and the Virgin Islands. So let's talk a little bit about the business model of self-storage. I see these areas popping up everywhere. I see these self-storage facilities popping up everywhere. How widely used are they? How profitable are they versus, you know, traditional

• 19:55Barry Ritholtz?

  commercial real estate? What is the appeal that just over the past 10, 20 years, this space has exploded?

• 20:04Speaker 04

  It's a great question. So self-storage has the lowest breakeven occupancy of any institutional real estate asset class I can think of. So at 40% occupied, you're breaking even on expenses. So there, it's very risk adverse. It's a very risk adverse asset from top to bottom. When you're looking at how, what the tenant signs to become a tenant, these are month-to-month leases, so we can adjust to what's happening in the macro environment at any given time. There's no lease risk whatsoever in the asset class.

• 20:33Barry Ritholtz?

  So no lobby, no doorman, no showers, no, none of the things that multifamily makes so expensive?

• 20:41Speaker 04

  Well, you think about a multifamily, if you're going to turn a unit, it's going to cost you anywhere from, let's say, 1,500 to 5,000, depending on what you're doing. Self-storage is $5. We're sweeping it and replacing a light bulb, if there is one. So, and tenant improvement is what really hurts, especially office, but a lot of real estate assets. You're constantly chasing that capital improvement.

• 21:00Barry Ritholtz?

  Really, really quite interesting. What about ancillary revenue streams? We've all seen those silly reality shows where they find these, you know, someone abandons a unit and they find some million-dollar painting in there. How much nonsense is that?

• 21:15Speaker 04

  Yeah, I haven't had that look. But the, it's funny that you bring that up. So prior to those TV shows, we would have the auctions on-site, kind of like you see in those, the TV shows. What happened, though, everybody all of a sudden started showing up to these, had a personality, they thought they were on TV.

• 21:31Barry Ritholtz?

  Right.

• 21:31Speaker 04

  The traffic became overwhelming on the asset, so everything now is virtual. So when we have an auction, it's all done online, but the, and it's not a revenue source for the business. So we put our properties through a five-step value creation process. And one of those steps is diversifying the revenue stream. And it's a great question, because there's a substantial amount of value picked up in self-storage through these ancillary revenue streams. One of them is a tenant protection program, where the tenants are able to push the liability of a storm or something happening to their goods onto the landlord for paying a certain price. There's obviously, there's prime access, if you need access past the operating hours. So let's say you need access 24 hours a day, you're a small business, you can pay for that. So these items obviously add up when you have

• 22:16Speaker 04

  200,000 to 300,000 units like we currently operate.

• 22:19Barry Ritholtz?

  I hadn't even thought about the idea of a storm. So you live near a coast, there's a big hurricane coming. Hey, I have a bunch of furniture and I want to get soaked if we're if we're swamped. Let's move an inland to a storage area and that's

• 22:33Speaker 04

  And God forbid, something happens to their home. You know, obviously, a lot of stuff gets moved into the storage facility.

• 22:39Barry Ritholtz?

  So you you guys are the largest privately held self-storage set of ownership. What's the competition like? I know I know Blackstone is in here. We see cubes everywhere. We see public storage. Who are your big competitors? And is there an eventual play where someone takes you out?

• 22:59Speaker 04

  Correct. So there's the group of public companies that you were just mentioning. You have extra space, you have public storage, you have Cube Smart, U-Haul.

• 23:06Barry Ritholtz?

  U-Haul. I didn't even think of U-Haul. That's right.

• 23:09Speaker 04

  Correct. You know, most people think of them just as a moving business. But obviously, they own a substantial amount of self-storage, substantial amount. What we do differently is we operate differently. We have a different, I would say, rationale when it comes to operating compared to the REITs, where the REITs are highly focused on occupancy. They want to keep their occupancy by 90, 92%. Where I'll trade occupancy for top line revenue. So what we'll do is in the off-season, when it's slower, we'll hold our rents, create some occupancy, and then come spring, when the season's busier, we have room to put the higher payers in. Where the REITs are more focused on keeping that occupancy steady at 92, then come spring, they have no room to put those people in. So we really focus

• 23:51Speaker 04

  on driving the value. We've looked at what works over the last 20 years. And now we've just implemented it on scale across the portfolio.

• 23:58Barry Ritholtz?

  And then the related issue I see are the mobile pods people sometimes use is seems sort of adjacent to the space. What are your thoughts on that?

• 24:07Speaker 04

  So we're not in that business. It's a lot more labor intensive.

• 24:11Barry Ritholtz?

  You got to physically drop the pod off and then come collect it later.

• 24:15Speaker 04

  Correct. So in storage, one of the main benefits is there's we take no abailment risk. So we're never taking possession of the person's goods. Where the pod, you start to cross that line a bit. So on the storage, it's 100%. The consumers or the client's possessions, we have no contact with it. They put their lock on it. They're the only one that has access to it. We're 100% hands off.

• 24:38Barry Ritholtz?

  So this really went from kind of a niche to a mainstream

• 24:42Speaker 04

  100%.

• 24:42Barry Ritholtz?

  investment class over the past couple of years. You were really early in this space. What did you see that others miss? And what do you think a lot of commercial real estate investors don't quite understand about this space?

• 24:56Speaker 04

  It was the fragmentation. Again, the first fragment assets I was focused on were the mobile home parks and RV parks, which I saw starting to consolidate. And then obviously how well storage did during those tougher times, which really led me to the storage being highly fragmented. When I first entered the asset class, even back in around 2015, 2014, it was roughly 80% still owned by mom and pops.

• 25:19Barry Ritholtz?

  Wow.

• 25:19Speaker 04

  So just the REITs and the institutional has only owned 20% of the outstanding supply.

• 25:23Barry Ritholtz?

  And today?

• 25:24Speaker 04

  It's probably closer to 70, 75%. So there's been a lot of consolidation. But what's interesting about storage is that the new supply coming online is being brought online by what we call merchant builders. So they're regional developers who have an extra piece of land. They're shopping center developers who put a storage up on that corner lot or that key lot they might have. It's not the large institutions building the supply. So it keeps it pretty fragmented. So they're the ones adding the new supply to the market.

• 25:53Barry Ritholtz?

  That's really, that's really kind of interesting. So a couple of years ago, you did a raise, a couple of billion dollars from outside investors. Seems like that's a good chunk of money to go out and start either buying or building. How do you look at the two options?

• 26:10Speaker 04

  So we don't like taking construction risks. So I like that we buy cash flow. So day one, for an asset to make it through our IC committee, we have a very high threshold and that part of that threshold is cash flow. We pride ourselves on being able to distribute free cash flow to our investors pretty early in the fund's life, even during the investment period, which is pretty rare. But the fund business started in actually 2015 as a smaller fund. Up until that point, I had only purchased on my own capital. And we did a test fund that did very well. It was a smaller fund. It was only 154 million. And then the second fund, we grew it to 725 million. And then the third fund is the one you're referring to is roughly $2.5 billion fund.

• 26:54Barry Ritholtz?

  So why go to outside investors rather than go the securitized route? Is it that much less expensive to do?

• 27:01Speaker 04

  It was basically, it's a, it's a scale play. So we, I knew the asset class was going to consolidate quickly once the other, the large institutions understood it better, or when the large investors did. And I wanted to have that foothold in the market. And the best way to do it was through the co-mingled fund way. Where, and also by doing that, I think we were able to disrupt things a bit because we pride ourselves on delivering what we call entrepreneurial type returns. We are operators. We are in the field on a daily basis. We're in the office grinding this out. So we try to deliver direct property level returns to our investors.

• 27:36Barry Ritholtz?

  So, so not hands-off REIT-like?

• 27:39Speaker 04

  Correct.

• 27:39Barry Ritholtz?

  Numbers. So, so let's, you mentioned your investment committee. Walk us through the typical acquisition. How do you source these things? Is it still just calling people up and saying, hey, let us know when you want to sell? And following up? And then what's the process like through the investment committee?

• 27:56Speaker 04

  So this, this is where it takes the correct personality to be this part of the team. And these are what we call our deal team members. So what we use is our proprietary software we have developed in-house that we load our entire buy box into this software. And it projects, it's an AI system, every self-storage that fits that criteria in the country. And it has every data point about that asset. The owner, how big it is, the taxes, the rate, everything you could imagine. Then we allocate that deal to the deal team member that covers that area. Then he or she continues to call that owner every 30 to 45 days until we convert them to a seller. So some of these deals that we're buying today, we've been working on for a decade. And we finally got the seller to the point to sell.

• 28:40Speaker 04

  So it's a very thick-skinned, long, you know, relationship, but it's a numbers game. So if we have 36 people with good information calling these owners, and the reason why we do so much upfront information is we want to know more about the asset than the seller does in a way, because we want to separate ourselves from anybody else calling them. We want to show that we're sincerely interested in buying their asset when we're able to tell them, you know, or even educate them about their own asset at times.

• 29:07Barry Ritholtz?

  So I get calls from and emails from private equity guys, hey, do you guys want to sell, blah, blah, blah? It's like, it gets annoying at a point. What's the conversation like with the seller? Hey, spoke to you back in October, just checking in, seeing if anything changes? How receptive are people to this?

• 29:26Speaker 04

  So it's more than, and I get those same emails and it drives me nuts, or the phone call, will you sell your property? I'm like, which property, what area? So when we call, you know, we're referring to an exact asset. We've already been by the asset. We know what the numbers are. We know the size of it. We've done, we might've spent already two weeks researching that asset before we called the owner. And instead of somebody just blindly calling you, Barry, but if they called you and they knew a lot about, you know, your, your business and they knew the numbers or estimated, sometimes you're more intrigued to say, hey, this guy spent the time to learn about. But then we visit them on the holidays. We find out when their, their birthday is, we send them a card. But it's a constantly being in contact with them. And then we try to solve that problem, what they do with the money afterwards. How do they maximize their sale proceeds?

• 30:09Speaker 04

  And we hold their hand through the process and they become one of our biggest referrals, uh, sellers.

• 30:15Barry Ritholtz?

  Huh, that's amazing. Maximizing returns afterwards, I'm going to assume that's some combination of it's, it's obviously capital gains. There's a bunch of depreciation that comes along. There, there's a lot of different things, um, a seller can do. I would not have thought that a buyer is going to facilitate that process.

• 30:36Speaker 04

  Would hold their hand through it. Cause we want to eliminate any kind of friction. We need to buy assets. We need to buy that asset. Like you said, we're not blindly taking a shotgun and just waiting for something to come to market. We're specifically targeting assets that fit our criteria. So we know which ones make sense until we dive into the actual, you know, initially it's all hypothetical until we get the actual numbers from that seller. Uh, that's the only time things would change.

• 31:02Barry Ritholtz?

  So this sounds like it's a really unique approach in the commercial real estate.

• 31:06Speaker 04

  It is.

• 31:06Barry Ritholtz?

  Are you concerned that someone's going to say, hey, these guys seem to have figured it out, let, let's do what they're doing?

• 31:12Speaker 04

  Well, we have 25 year head start on them. So we have, you know, decades of information gathering, decades of conversations with these sellers. Moreover, it's a heavy lift. It's a burdensome, it's expensive, what I carry on my deal team. But the reason we do it is because there's no other way to buy assets the way we do and create the value we do if we were buying them on the open market. You think about it. If we weren't buying it this way, we would be buying it like 99% of every other asset where it gets brokered, beautiful pictures are taken, it's presented in its best color, it's shotgunned around to 100 buyers, you go through multiple layers of bidding, and at the end you overpaid for the asset.

• 31:50Barry Ritholtz?

  The winner's curse in an auction situation.

• 31:54Speaker 04

  Exactly right.

• 31:55Barry Ritholtz?

  The more buyers there are, the more likely it is the winner overpaid.

• 31:57Speaker 04

  Hundred percent. So we bypass all that. And we go directly to the seller and we solve problems for them.

• 32:03Barry Ritholtz?

  That's really fascinating. I would not have guessed that degree of complexity, sophistication, and facilitation to the seller.

• 32:13Speaker 04

  Here's the crazy thing. We're closing six to seven deals a month.

• 32:16Barry Ritholtz?

  So one or two a week?

• 32:18Speaker 04

  On average, when you look at it that way. You know, we'll bundle them up so they all close in a certain maybe couple quarters. But yeah, when you average it out.

• 32:25Barry Ritholtz?

  So it sounds like just the prep before you make an offer.

• 32:30Speaker 04

  Offer.

• 32:31Barry Ritholtz?

  If it's a few weeks, it sounds like you're spending tens of thousands, maybe hundreds of thousands of dollars.

• 32:36Speaker 04

  Easily.

• 32:37Barry Ritholtz?

  Really?

• 32:38Speaker 04

  But you think about it. If I don't get that asset today, I might get it in a month. If I don't get it in a month, I might get it next year. If I don't get it next year, we're into this for the long run. You know, we're building a, I think, become the best operator of alternative assets.

• 32:51Barry Ritholtz?

  And when you guys raised Fund III, that was the largest dedicated self-storage fundraise at the time. I think that was $2.5 billion or something like that. Is that still the largest? Have there been other subsequent raises in the self-storage space?

• 33:07Speaker 04

  That's the largest I know of. That might have been one of the largest property-specific funds raised as well. I've heard that before.

• 33:14Barry Ritholtz?

  And what's the total self-storage headcount? That's over 300 now?

• 33:19Speaker 04

  We have over 300, close to 350 assets. We have around 700 or 800 employees around the country. We have two main, actually three main offices now. We have one in Saratoga Springs where we're, it's our main headquarters. Then we have one in Jupiter, Florida, and we're just opening an office here in West Chelsea.

• 33:37Barry Ritholtz?

  Really, really quite fascinating. Coming up, we continue our conversation with Bob Moser, founder and CEO of Prime Group Holdings, discussing the state of commercial real estate today. I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio.

• 34:04Speaker 01

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• 35:29Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio and watching Masters in Business on YouTube. My extra special guest this week is Bob Moser. He is the CEO of Prime Group Holdings, the largest privately-held self-storage investment group in the United States, over 350 locations across 28 states, the U.S. Virgin Islands, and Canada. I want to talk a little bit about the state of commercial real estate today, but I still have a handful of questions I have to ask you. About self-storage, you mentioned small businesses are a big customer. I wouldn't have guessed that.

• 36:13Barry Ritholtz?

  What percentage of your units are rented by small businesses and what do they use this for?

• 36:19Speaker 04

  It's a great question. It's probably one of the most overlooked aspects of self-storage. Self-storage has two demand drivers, which is very unique in real estate in general. You think about residential, you have residential demand. An office has business demand. Self-storage, we have both residential and business demand. A lot of people think of self-storage, they think of storing their grandmother's couch. It's far from it. That might be 1% or 2%. The rest is, 30% to 40% are small businesses, contractors, landscapers, a lot of pharmaceutical reps. So, we are their warehouse. We are the warehouse for that small business that employs the majority of the US population. And what's nice about storage being on a month-to-month basis, the terms of the contract,

• 37:03Speaker 04

  they can expand or contract as needed with their business. They don't have to sign a long-term lease with an industrial or a warehouse. It's a perfect fit for an entrepreneur or a starting business, or even a mature business.

• 37:14Barry Ritholtz?

  Huh, really, really interesting. And we were talking previously about self-storage isn't covered by the traditional landlord-tenant law. This is a much easier set of rules to operate under. This is a lien law system, is that true in all states, most states?

• 37:32Speaker 04

  100%. And actually, it carries to Canada as well, in parts of Europe that we're looking at. But yeah, and it's basically very similar to like a bank loaning money, their collateral or the lien against a particular asset. And that's the way they look at it. And remember, we take, like I was saying before, no abilment risk. So, we have no idea what's being stored, what the value is. So, that is the collateral to their lease if they don't pay, that there's an auction process. Obviously, we don't want to auction off anybody's goods. And if, let's say, we send out 50 auction notices, maybe one or two go, because hopefully we can work with that tenant and get them caught up. But it provides a way to collect the rent that's owed, unlike a multifamily where it might take you a year, if you're lucky, to evict somebody that's not paying.

• 38:16Speaker 04

  Self-storage is a lot quicker, easier process.

• 38:18Barry Ritholtz?

  And you mentioned Europe. I don't think you have a whole lot of exposure currently in Europe. How big a push are you looking to make on the continent?

• 38:27Speaker 04

  So, we've been doing a lot of digging in, figuring out what the different... Aspects in different cities, you know, it's interesting because some of the owners in Europe, like say, let's look at London, there will be two or three owners that own the majority of that inventory. Our play again is going out and buying from that one-off owner. I really haven't dove into that much, but it's an important aspect to our business is we identify the institutional asset that's still owned by mom and pop. So we target that person that owns one or two facilities. And the reason for that is that they're not a professional operator and the chances are that we'll be able to achieve our returns, if not better than what we estimated, based on putting our systems and processes over that family-operated asset.

• 39:11Speaker 04

  So in Europe, they've been consolidated into groups, so it really doesn't provide us that ability to buy assets that we think are highly under-managed. So we're very risk adverse, so we'd like to see exactly how the value is going to be created. You know, we have a game plan on every asset, what levers need to be pulled in order to create that value. And one of those is a lot of the optimization of the rent roll, optimization of the actual unit mix, the layout of the facility. And if it's a larger, more professional owner, the chances are those low-hanging fruit might not be there. So we're still trying to find the markets that have that fragmentation, where there's still one-offs and two-off owners, because that is really our bread and butter.

• 39:52Barry Ritholtz?

  So in the US, the laws vary somewhat from state to state, but it's fairly uniform. How different is it country to country in the EU or UK?

• 40:02Speaker 04

  Yeah, but even in the States, when it comes to the actual implementation of the lien law, it does, there's different timings, there's different fees that can be charged, there's different things that you do with the proceeds from the auction. Let's say you receive more than what the person owed you, some of it gets donated away, some of it gets contributed back to that seller. Depending on the state, that extra free proceeds determines where it goes. So we have a whole legal compliance team that works on this on a daily basis to make sure that each state law is being followed, every municipality in the US, every territory in Canada. And that's the research we're doing right now in Europe and in Australia, trying to find the markets where we know we can go in and consolidate, get economies of scale

• 40:46Speaker 04

  out of it, but buy the assets the way we want to buy them, on this one-off way.

• 40:51Barry Ritholtz?

  Really interesting. So, commercial real estates have seen higher rates of costs. Interest rates and inflation have been kind of stubborn and sticky. What sort of refinancing stresses does that create? Or are you sidestepping that whole interest rate chase these days?

• 41:12Speaker 04

  So, we're very fortunate. Being in real estate for as long as we have, we have developed really deep relationships with the large institutional lenders. From Citibank, Goldman, the JP, the BMO, to Northern Trust. You know, I'm sure I'm missing one. I'll probably get a call after this. But we have very deep rooted relationships and we're relationship oriented. So, we're there. We work with these banks. And it's a flight to quality during this time. Where lenders are going to the lenders they have long-term relationship and track records with. But we spend a lot of time making sure that we're hedging our interest rates. We're making sure that we're, you know, we're putting the right debt on the assets at the right time. You know, making sure we're not cross collateralizing too much. So, a lot goes into it.

• 41:57Barry Ritholtz?

  I can totally imagine. We've certainly seen shifts in demographics with everything from migration and remote work and aging populations. How does that affect demand for commercial real estate? Both self-storage and other related real estate?

• 42:16Speaker 04

  It's a big demand driver for self-storage. So, when you think about it, people now are living in apartments more. I think I just heard the average, the first time home buyers now until like they're 40 now.

• 42:26Barry Ritholtz?

  Yeah, late 40s.

• 42:27Speaker 04

  It's crazy. When it used to be like 28 or 26. So, obviously, they live in smaller apartments. They need place to put their stuff. They need storage. Storage is almost like a trade-off. Is it that extra bedroom that might cost you $500 a month? Or is it a storage for $75 a month? You know, so it's always a trade. Same thing with an office. Is it that bigger office where you can have stuff on-site? Or do you supplement it with a less expensive at the self-storage? So, this goes back to self-storage being a need-based real estate. And this is why during tougher times, the aspirational real estate are the ones that take the hit. Like we've seen in office lately.

• 43:02Barry Ritholtz?

  Yeah, speaking of office, we've seen a lot of underutilized office properties, work from home continues, hybrid working continues. How is that affecting what you're doing? I just saw, related to this, I just saw a piece in the Wall Street Journal this week that there has been a sudden surge of office to residential conversions in lower Manhattan, which two years ago, everybody said, oh, it's too expensive, it's too time consuming. Do you track that sort of stuff? What sort of impact does that have?

• 43:35Speaker 04

  We're actually working on one of those now, actually.

• 43:37Barry Ritholtz?

  Oh, really?

• 43:37Speaker 04

  It is, it's pretty interesting. So we-

• 43:39Barry Ritholtz?

  So, commercial office to residential real estate?

• 43:42Speaker 04

  So, what it was, was we, there was a group of assets in West Chelsea that we ended up buying, that one of them by, actually, two of them by right could be self-storage. We're converting one to a high-end storage of the future, we're calling it, and I can go into that more modern, a lot of technology-driven self-storage. And the other part of the project was a nine-story building that's on the High Line that we are going in to have it converted from office to residential.

• 44:09Barry Ritholtz?

  On the High Line, all those properties have become incredibly valuable with some star architect designers and that sort of stuff. It's always fascinating. I'm sure that's going to be interesting.

• 44:22Speaker 04

  We're excited about it.

• 44:23Barry Ritholtz?

  When you say high-tech self-storage, I can imagine an app and an ability to have stuff brought out to you or stuff brought into you. What does high-tech self-storage look like?

• 44:34Speaker 04

  So, we have actually harnessed the free energy of your cellphone to unlock the lock. So, it's pretty interesting. So, it's almost like a PayPal, I believe, or Apple Pay uses. So, basically, if you look at the lock is what controls this business, the actual lock that's put on. And you have this, a physical key, you can lose that key, you can't, you know, it's hard to share. Like, let's say you're a small business, how do you give your employee access without giving multiple keys? So, we've devised and have built a lock that your cellphone gets an electronic key sent to it, and then you can use that to open up the lock. There's no batteries needed, there's no Wi-Fi needed.

• 45:11Barry Ritholtz?

  Some of the new- EVs are the same way where you show up with a phone and it

• 45:15Speaker 04

  Exactly.

• 45:16Barry Ritholtz?

  Not only unlocks the car, it lets you start it.

• 45:19Speaker 04

  So we're bringing this to the self-storage business. And we have our first 5,000 being deployed as we speak right now. But what's really nice, it's catering not only to the residential, but the business consumer then can share their key for one-time use or time of use with an employee. The other thing is if they're late and don't pay, their electronic key is turned off. But also the customer gets a full audit at the end of the month, when their unit's been opened, what time it was. So they know who's been in and out of their unit.

• 45:46Barry Ritholtz?

  Really tracks it.

• 45:47Speaker 04

  100%.

• 45:48Barry Ritholtz?

  Huh, that's really fascinating. If it's not Wi-Fi, how does the key operate? Is that Bluetooth or something else?

• 45:54Speaker 04

  No, it's purely off, so your cell phone gives off energy, just sitting there. And it was enough to harness to actually flip that solenoid. It's pretty amazing. So we've been working for a couple of years to get this perfected.

• 46:05Barry Ritholtz?

  I'm assuming there has to be a battery in the lock?

• 46:08Speaker 04

  No battery, your phone.

• 46:09Barry Ritholtz?

  No battery?

• 46:10Speaker 04

  No battery, that's the key to this. So, and it's good that you brought that up because everybody else has done it with a battery in the lock.

• 46:16Barry Ritholtz?

  And eventually that battery

• 46:17Speaker 04

  That battery dies.

• 46:18Barry Ritholtz?

  Even the digital safes. Digital safes have a battery, the first time the battery dies on your safe.

• 46:24Speaker 04

  You know the pain.

• 46:25Barry Ritholtz?

  You're like, oh my God, and you call them up and say, just, just replace the battery.

• 46:28Speaker 04

  This wasn't supposed to happen.

• 46:29Barry Ritholtz?

  Right.

• 46:29Speaker 04

  Now it is, so if you think about it, one of our facilities in Astoria is 3,300 units. Okay, that's 156,000 square feet. So, first of the month comes, if people haven't paid, that manager has to leave the front desk, go around and double lock those units.

• 46:44Barry Ritholtz?

  Right.

• 46:45Speaker 04

  Now, the electronic key just magically freezes the unit. So it reduces our labor, it gives the consumer a better product and easier product to use. They don't have to worry about losing a key, they have a lock for free on their unit. They get an audit of their unit, it gives them everything they want to know. It's a great win-win.

• 47:01Barry Ritholtz?

  Huh, quite fascinating. So, given your perspective and experience in all sorts of commercial real estate, 2026, there's a lot of questions, people have no idea what's going on in terms of rates, in terms of government policies and tariffs and all these different things. What are you seeing in the commercial real estate space circa 2026?

• 47:24Speaker 04

  It's a good question, I was on the phone on the way down here with some of my bankers talking about this. You know, where does the curve look like in the short term? You know, obviously I think SOFR is going to be coming down, you know, obviously rates are being lowered. I'm hoping to see that on the five-year treasury as well. You know, I-

• 47:40Barry Ritholtz?

  Is that your benchmark for fees as opposed to, you know, 10-year for mortgages?

• 47:45Speaker 04

  Yeah, so I look at the five-year quite a bit. You know, we'll do 10-year on some, but the, the length of the fund, really the five years, is probably the most conducive in, in a fund structure. It gives you the flexibility, you know, you can refinance out of it, but you're not locked into a point where, at times, the debt could be a penalty. If it's under-leveraged, you eliminate a lot of buyers at the end when you do a roll-up, or if it's too costly, then you have defeasance and everything else that goes along with it, yield maintenance. But the five-year works well.

• 48:14Barry Ritholtz?

  So, uh, we've been hearing from various manufacturers, there's no sort of clarity as to policy. Everybody's kind of frozen capex in place and are a little reluctant to build or acquire. I get the sense that's not really an issue with your business.

• 48:29Speaker 04

  Going back, it's need-based real estate. People need it to, no matter what the life cycle is, whatever the macro economy is, they need space for their products, goods, inventory, their personal items.

• 48:42Barry Ritholtz?

  Really, really fascinating. Last question before we get to our favorites. So, so what do you think commercial real estate investors aren't thinking about or talking about, um, but perhaps should be? What, what's really overlooked in terms of, pick a subject, assets, geographies, policy, uh, that, that's getting overlooked, but, but really deserves more focus?

• 49:06Speaker 04

  I really think it's about how to really create value in real estate. Real estate is not a short-term investment. And a lot of people look, and I'm not even talking, three to five years is short in real estate. I remember years ago, this old timer told me that, you know, real estate's boring for the first 30 years. But it's true. It really takes a while, not only to not be boring, but to be actually, you know, profitable, lucrative, and then you start really, then it starts to multiply on itself. As the rents go up and you stabilize those expenses, things start to grow rapidly. But I think it's the longer-term vision to really create true value in real estate. I think the time horizon needs to be a little bit bigger than three to five years. Because what happens and people are put in the situ-

• 49:49Speaker 04

  Where they have to sell or they have to do something where instead real estate has to live through those cycles and it's just the best way to manage them and just buying the right assets defensive assets like when we're buying an asset one of the biggest things is traffic count but it's not just traffic count it's traffic pattern we want to make sure like on our storage assets you're driving past that facility every day on the way to work on the way to school it's location location location driven people have to remember the basics at times and sometimes we get away from that and we start to look for things that are too sexy or or you know stay simple you know things that people constantly need and you'll realize when you buy assets like that there's inflation hedges built in like storage I can adjust rents on a 30

• 50:31Speaker 04

  day notice you know there's a lot of inflation heads built into those type of assets

• 50:36Barry Ritholtz?

  it's it's funny the line real estate is boring for the first 30 years after Sam Zell passed away I read a biography of him and one of the things that kind of that stunned me was he owned some of his properties for half a century

• 50:52Speaker 04

  forever forever

• 50:53Barry Ritholtz?

  that's just that's just an unbelievable number

• 50:56Speaker 04

  it's almost like the Warren Buffett way of buying real estate and that's the way I and I think that was probably the hardest thing for me to get my head around doing the funds because I know what real estate can do over when you get past that 10 year period that's when your values start to really start escalating and really really growing and it's really having the right LPs understanding you know the asset classes

• 51:17Barry Ritholtz?

  long term is really long term when it comes to real estate

• 51:20Speaker 04

  I I'm God willing I'll be here when I'm 94

• 51:24Barry Ritholtz?

  so so let's jump to our favorite questions that we ask all of our guests starting with who were your mentors who helped shape this obsession with real estate from the earliest days and helped shape your career

• 51:37Speaker 04

  I've had I've been very fortunate to have some great partners along the way From some of my like Ken Langone, founder of Home Depot, was a really close friend and mentor. But along the way, I've been, I think you learn from everybody you meet along the way. I think you kind of, and when you look at that, anybody can be a mentor at any given point in time. But I've been fortunate to have some of the largest investors in the world, like the late Ira Harris, who was absolutely amazing and taught me a lot. You know, just life lessons, speaking to them, knowing, you know, the long-term look at assets, how to be patient, what to look for. You know, there's a lot that have added up over the years and hopefully now I'm passing that along to others.

• 52:18Barry Ritholtz?

  So let's talk about books. What, what are you reading and what are some of your favorites?

• 52:22Speaker 04

  I think probably my favorite was Remnants of a Stock Operator. It was a great book.

• 52:27Barry Ritholtz?

  What about streaming? What are you listening to or watching, anything keeping you entertained these days?

• 52:32Speaker 04

  Podcasts, why, besides yourself, we were all in, listening to some of that on the way down. I was just listening to actually your interview with Alonzo's CEO.

• 52:41Barry Ritholtz?

  Wilhelm Schmidt of Alonzo. Fascinating guy.

• 52:44Speaker 04

  Really, really, that was a great interview, by the way. I didn't realize how big into cars he was.

• 52:48Barry Ritholtz?

  Can I tell you, there are worse places to be than a beautiful sunny weekend in Newport.

• 52:53Speaker 04

  You sounded very happy.

• 52:55Barry Ritholtz?

  I had, I had a good time that weekend. So final two questions. What sort of advice would you give to a recent college grad interested in the career in commercial real estate investing?

• 53:06Speaker 04

  I think it's in anything. Don't count somebody else's money. I see a lot of younger people wondering what the other person next to them is making and concerned about that. Always do more than what you're paid for. And you have to be enthusiastic. Enthusiasm is probably the biggest driver of success I can think of.

• 53:22Barry Ritholtz?

  Enthusiasm, that's really fascinating. And our final question, what do you know about the world of commercial real estate investing? Today would have been helpful back in the 1990s when you were first starting out.

• 53:36Speaker 04

  I would say it was more about managing people. It took me a long time to learn how to manage people. You know, I didn't have the benefit of working for a company. I started my own business in college, obviously grew it straight through, never had that experience. It took me a long time to learn how to manage different, I would say, strengths of different people. And I wish I had, and the ability to empower people. It took, you know, obviously it took me probably a decade and a half before I really felt comfortable doing that. But yeah, I think that was probably, if I had done that earlier, I'd probably be bigger.

• 54:09Barry Ritholtz?

  Really, really quite fascinating. Thanks, Bob, for being so generous with your time. We have been speaking to Bob Moser. He is the founder and CEO of Prime Group Holdings, America's largest privately held self-storage investment fund. If you enjoy this conversation, well, be sure and check out any of the 592 that we've done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, or wherever you get your favorite podcasts. I would be remiss if I did not thank the crack team that helps me put these conversations together each and every week.

• 54:52Barry Ritholtz?

  Alexis Noriega is my video producer. Sean Russo is my head of research. Anna Luke is my podcast producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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