Self Storage, AI Hate and Extortion w/ AJ Osborne

Mike DeHaan: [0:02] My wife got this printer delivered. She's an artist. And this thing is so unbelievably massive. And so behind me is a bunch of cardboard. And so it would look like I was actually homeless instead of just

Dan Austin: [0:13] The homeless. The brick's a good idea. Your house won't burn

Mike DeHaan: [0:16] down if it's made of bricks. Oh, yeah. Thanks. Yeah. Appreciate that, Dan.

Dan Austin: [0:19] Got it. Yeah. Just saying.

Mike DeHaan: [0:22] What's going on, guys? Welcome to collecting keys. I'm your host, Mike DeHaan here with Dan Austin, Dylan Cook, and special guest today, AJ Osborne, making a guest appearance after we very unfairly bashed him two weeks ago. We'll just

Dan Austin: [0:38] say this. Our research analyst, Dylan, sucks. He doesn't do any fact checking.

Dylan Koch: [0:42] I did not send that article. That was Mike. No.

Dan Austin: [0:46] Sorry. Whoever your research analyst is.

Mike DeHaan: [0:48] What's actually I actually should look where I got that article from because someone very explicit

Dan Austin: [0:53] probably sent it to you.

Dylan Koch: [0:53] It was probably sent by a follower, I think. I think it was sent by someone who listens to the podcast.

Mike DeHaan: [0:57] It might have been. Yeah. So I'm not gonna bring too much attention to that because I don't want to put the individual on a pedestal or bring any additional eyes to their platform. But very basically, the person that we spoke about on that show, which has since been edited to remove the comments in the story about AJ Osborne and his business. He is a known fraudster that has a rap sheet that's actually, like, amazing to, like, for lack of a better word, where he's, like, falsified financials and information to take companies public. He caused these massive crashes with some of these very, very large public companies. Like, the losses that he caused are in hundreds of millions of dollars. He's been on, like, the cover of Forbes before people realized he was a fraudster. Like, he's has an incredible track record. And now his thing that he does is he targets private individuals that are raising money and basically tries to extort them by releasing false press, knowing it will scare away investors unless he has paid a substantial sum of money. I'm not gonna share any more about his name or anything like that. But after sort of having a lot of these details come to light, we decided to remove that content from the previous episode. And AJ Osborne was gracious enough to come on and kinda tell us what he actually does since a lot of people listed you heard that before we took it down. So we wanted to at least give him a platform to to come in and make some amends and then to hang out with us for the episode today as well. So AJ, thanks so much for joining us today, man.

AJ Osborne: [2:24] Thanks for our mailing, guys. Appreciate it.

Mike DeHaan: [2:25] Yeah. Absolutely. So I guess first off, just to address that a little bit. So with a lot of his stuff, it was generally falsified with what you do. For people who maybe don't know what you are, it's give us like a 50 foot view. I know you're known as a self storage guy. A lot of people will know that. But like how exactly does your business function? Are you flipping these things? Are you holding them? How are your investors typically compensated? Are they like equity partners? Are they getting cashed out? Like, what does that look like?

AJ Osborne: [2:50] We own, operate. We're in over 12 states. We've got over 2,000,000 square feet. So far this year, we've purchased over a million net rentable. We have under contract a closing over 2,000,000 net rentable now. So we'll probably end the year at about 3,000,000 net rentable square feet in addition. And we do all things storage. So we've been doing it since prior to 2008 and on. We built all our companies. So I actually own and sit on the board of companies in the industry, like tech companies, as well as we were founding members of the largest co op in the industry. And we are very involved in the industry as a whole. And that's been a journey for, you know, the last twenty plus years where we felt love in storage. We built all our companies on our own capital. We never took investors, anything else like that. So we allowed that investors to come. And 2000, I think it was '18, '19 was the first time we allowed anybody to even do it because they'd been asked, of course, timing, horrible timing. Right. But that's, you know, how it works. And then we allow them to be equity partners. So we work with lots of individuals, but we also work a lot with major institutions.

Mike DeHaan: [4:11] Gotcha. Okay.

Dylan Koch: [4:12] Primarily 506C when you first started as offering, or were they any different than that?

AJ Osborne: [4:17] Yes. Accredited investors only. That's how we've always ran it and done it. But we do everything in storage. I'm totally a nerd. That's like all I do. You know, I'm not a generalist. Anything else, we do the whole tech suite. We spent over $10,000,000 building out our tech stack and tech suite, both internally and externally. So I sit on the board. I'm the largest owner of the second largest data aggregation and data company, Trackt IQ, which looks at all things storage, gets all the data, everything else that everybody uses, as well as largest investors sit on the board of Tennant Inc, property management software system, Store Local, the co op, the largest co op in the industry. So we really look at storage like a business, and we treat it as such. And one of our main goals has been lowering the barriers of entry for independents to compete with the REITs. Because in storage, once the consolidation started after 2008, the size and power of the REITs were so big that us and other large operators were like, we're gonna end up like the hotel industry if something doesn't change. Like there'll be five companies that own everything because they have all this data, all this leverage and power.

AJ Osborne: [5:36] So our answer to that was, well, we can have leverage and power if we're all together, right? As opposed to individually. So on SEO, because over 80% of all your tenants come from online. And so on SEO placement, ad spend, insurance, right? Everything else where you get that scale volume, We built out that co op and organization so that people could just join it and then they get all the power of it. So we're really big on independent operators and keeping storage as a diverse industry of beginners, small operators, midsize, right, to the large operators, as well as the REITs. That makes a healthy industry we believe. That's how we stay in the industry, right? So that's always been a big part of our mission.

Mike DeHaan: [6:26] That's great. What does that look like for private operators being able to compete with REITs though? Because specifically with self storage, I mean, I remember back in 2022, to some of these GoBundance conferences, and some of these guys were in there. And their whole objective was to stabilize these things and then sell them to the larger funds. Because they could sell them to these funds at, a two cap or three cap, like, absurdly low. You know? And so I I don't know if those metrics have changed from an institutional standpoint of what they're looking for. But, like, obviously, a mom and pop owner's not gonna want that kind of return. If they're gonna have to get debt, which they probably will, they're gonna be losing their ass on this thing. So I guess how is that even really possible for them to compete?

Dylan Koch: [7:06] I wanna piggyback on that because it ties into that same question. It's like so like in multifamily, you hear depending on the market, your institutions don't get involved for, what, 150, 200 plus units. I mean, size of rentable square feet or storage facility would a REIT or institution even be interested in?

AJ Osborne: [7:22] So that's actually, this is one of the things I love most about self storage. Like one of our problems that our industry has is like limited data. So for example, the Wall Street Journal came out and like, okay, self storage has bottomed out with an average cap rate of 5.7. That data came from less than 1% of assets in only the top 10 largest MSAs in The United States. So we worked with Tenant, Trackt IQ, and we actually launched a couple weeks ago what we called the first real industry report. Because all industry numbers and reports leave out basically 80% of our entire industry. There's no information on it. There's no marketing. Like CMBS loans, for example, is a perfect thing. When they say self storage is the lowest defaulting asset, what they're doing is they're comparing CMBS loans, right? Where you have insurance and CMBS loans on like multifamily, for example, represents 80% of the whole industry. In self storage, it represents like less than 15%. And the only ones that represent are the largest players institutions in the top metro areas. So it skews wildly what's really happening. And when you look at the 80% institutions outside the top 2,500 metro areas in The United States, they make up less than 10%.

AJ Osborne: [8:48] So they don't play in that world, in that realm. And a lot of people don't realize that most storage facilities are a lot cheaper than they think. Like we're talking 2,000,000 under, right? 3,000,000 under for most markets. Institutions don't buy those. Large players, I don't buy those. I can't buy those. It doesn't economically make sense. So what they've been trying to break into that market and they're trying to now, they've just had a lot of problems and difficulty doing that. So if you buy a facility and you think, I'm just gonna flip it to an institution, right? And that's a million dollar facility with 80 doors that's not in a top 100 metro area. That's not gonna happen. They're not gonna buy it. So cap rates outside those top metros and outside of REITs have gone up to the highest level previous before 2015. 7.7 cap is average. So when you look at those institutions in the top metro area, it's a five and a half. Outside those though, cap rates have risen to seven to nine caps. Oh, wow. Wow.

Mike DeHaan: [9:57] Yeah. That's a huge difference.

Dan Austin: [9:59] You are right. You're definitely a storage nerd. You got these numbers off the top of your head.

AJ Osborne: [10:02] It's all I do.

Dan Austin: [10:03] Yeah. It's fascinating you're talking about that. I guess I'm just making an observation as you're talking. Like, I grew up in a smaller town. There's not a single multifamily property in the town I grew up in. So you, like you wouldn't, it's a family, people buy their house, they live there. But there's like four, maybe five storage facilities, like separate storage facilities there. So it's like storage is scattered across the entire country, small town, big town, it is- Everywhere. Probably, you said the 80% is like so fractionalized. And I'm sure, and I, if I was, if I was to guess each of those four or five storage facilities are owned separately by somebody else. Absolutely. So it's kinda wild.

AJ Osborne: [10:36] Yeah. 65% is single owners mom and pops. Wow. Like, that's wild when you look at multifamily where it's like 20% is not institutionalized. Mhmm.

Dan Austin: [10:47] Yeah. That's crazy.

Mike DeHaan: [10:48] Yeah. That's such a good example too of how like the fringe data, like, skews, like, people's perspective of the whole marketplace. You know, which I feel like exists in everything in real estate, and or probably in business, honestly. It's just real estate's kind of what what we know, is people use that, like, top percentage of what the big people are doing. They think that that represents the entire marketplace. But of course it doesn't. You know, it's like back when Dan and I were really into our fix and flip business. We would go to a lot of these conferences where everyone was syndicating multi families. And they would like rip on us for being in the residential space. But we had such well oiled machine. We'd flip these houses and, you know, we'd wholesale them. We'd make $40.50 k a house. And they didn't understand that potential because their view on residential real estate was so small minded because of their own marketplace they lived in. They didn't know how you could create that much value or or those kind things. And we were in Spokane. So AJ being in Boise, you also know how the Inland Northwest went Yep. From that 2018 to 2022 period. You couldn't not make money. Like if you just owned anything, you were Didn't printing matter. Right?

Mike DeHaan: [11:51] But at that point, you know, I was sort of when I realized there were these microeconomic sort of situations that exist everywhere that the general people just can't understand if they're not a nerd in that space like you are with self storage?

AJ Osborne: [12:04] Well, you know, during the I called it the self storage bubble. So in 2021, I actually wrote this big piece. And I called it the self storage bubble. I'm like, you don't understand. We are absolutely in a bubble right now. Cap rates had basically gone even, meaning that if you're in Pascagoula, Mississippi, you were selling your asset for a four or a five cap, which that's not supposed to happen, right? That's wildly not supposed to happen.

Dylan Koch: [12:29] Yeah, because the ten years trading at like 2% at that time.

AJ Osborne: [12:32] Yeah, exactly. And because low interest rates and COVID, demand for storage had surged. And I was like, we're going to get inflation, right? And rising interest rates is going to tank the market, but not just the market, it's going to tank the housing market. And I broke down. I'm like, you know, right at that time, 90% of all mortgages were thirty year fixed, under 4%. So unlike the great recession, what we saw was people lost their homes, they're not going to. That's actually the worst thing for storage, because it means nobody moves. Yeah. And so I'm like, we have a two sides of this that's gonna happen, and it's going to be bad, right? I was actually working with Goldman Sachs, and they because it was the only bare case that anybody had actually made on storage. And they made a lot of money shorting the REITs. All good. I'm like, I wish I was smarter and I would've thought of that or whatnot. Yeah. But it showed that discrepancy in what happened during that time. And what happens with those outer markets, if you bought a small facility at a five cap, three years later, money's gone. That's an eight cap now. Fundamentals are gone. There's no exit. You have to refinance. That pain is real and it's bad.

Mike DeHaan: [13:51] I feel like that's commercial real estate as a whole, not just self storage. I mean, that's what's been getting all the multifamily people to I mean, is there any part of like the commercial real estate that is doing okay right now? Maybe like warehouses, like something I mean,

AJ Osborne: [14:05] you got like, I think industrial. Industrial. A lot of that is because it trailed I think more behind. Yeah. Like during that kind of that bubble crazy time, industrial in like our market and everything, it was so massively underserved because of how how the internet changed distribution and how real estate was changing. The market didn't build industrial to the point where it did other assets. So it lagged behind. But still even that, you look at it, that doesn't take away the problem if you're looking at the interest rate problem. If you owned one, you need to refinance it. Or if you have to buy it, it changes the economics. So they're still hit with those issues.

Mike DeHaan: [14:45] Yeah. For sure. Yeah. And I mean, starting to see in residential now as well, where stuff is finally starting to fall in a lot of markets. How far has the market come down in Boise? It's gone up. It's gone up still.

AJ Osborne: [14:57] Boise is It is I mean, Micron hit a trillion dollar company. They're putting $80,000,000,000

Dan Austin: [15:04] I feel like that's a huge thing.

Dylan Koch: [15:06] Oh, I forgot Micron is there too.

Mike DeHaan: [15:07] Crazy. Yeah. And that just

Dylan Koch: [15:08] shows that the supply and demand can outweigh the economic factors, right? Because there's so much money coming into there.

AJ Osborne: [15:14] They're building like, not traffic is crazy here. They're building everywhere. Skyscraper, like it's wild.

Dan Austin: [15:20] The AI boom kinda came in at the right time, I feel like, for for Boise specifically.

Mike DeHaan: [15:24] Yep. Wow. Yeah. Good time. I've been seeing more data centers and stuff being built out there. That'll probably bring something. Yeah. Spokane's we've been staying relatively flat. Like stuff's come down a little bit since the high, but like not as much as like Austin or, you know, some of these markets that went crazy, parabolic up, and then now have collapsed at an incredible rate. The Northwest in general seems to be doing okay.

AJ Osborne: [15:46] Yeah. But what do you see

Mike DeHaan: [15:48] sort of happening with like, now we have the the rates really starting to go up. You're looking at self storage or the other things in in your world. I guess what I think about is I look at a lot of these people that we knew that were buying these properties in like '21, '22 on these like five year adjustable rates. Yeah. Like there has to be some major, major damage coming up here very, very quickly. Because I don't see rates correcting to anything reasonable. No.

AJ Osborne: [16:12] They're not going down anytime soon. And honestly, that's why we're buying so much. So we're buying, I think 50% of what we bought this year, and last year too, were developers that during the boom times, they started. Three years later, they open up. They need to go into a perm loan. They never had any intentions of owning and operating, because they could sell them at that time on pro form a, or if they'd get their CO, they could sell them at a five cap as if they were full. So developers were just making stupid money, not having to do anything. Well, they're stuck, right? And so we're buying like 40% under replacement cost. It's wild. And then we're, you know, I think if you look that pain's gonna continue, we're planning on it continuing. We're planning on buying. I think we'll buy more next year than we will this year. So that stress, because even if you had like, in 2021, we locked in our interest rates for like ten years, right? I was like, hey, we think this is gonna happen. We refinanced, we locked in interest rates for ten years, everything else. But that's actually uncommon in commercial real estate. Getting a ten year lock in, even a lot of our assets that we purchased, you couldn't do that. You're talking five years, right? So even people that were locked in are now hitting the time where they're going, we thought we were fine for five years, and that's now coming up.

AJ Osborne: [17:38] So I think that the pain is not only not going away, we're gonna see more of it. Up until the last twelve months, there was no transactions. Yeah, I mean transactions that's just died. Nobody was. Transactions have shot up this year. People are like, we're letting go. We gotta walk away. This isn't changing. It's not gonna change. And so we're buying a lot in Texas, Florida, where they got, like you were saying, so overbuilt. And then it's come down. We're finding lots of great opportunities in those markets because they got hit so hard.

Mike DeHaan: [18:12] Yeah. And we're starting to see some adaptation in the debt side of this space too. Debt's So been Dan and I's primary business for the last couple of years, and we have a reasonable sized lending company now. But going to some of these conferences, something that has really become more noticeable is this interest from true institutional debt in these kind of assets, in more commercial assets. And so we're already starting to see some of these people that will do thirty year fixed DSCRs on, multifamily units up to like 50 units. Unique. Yeah. Thirty year fixed products on those. And the LTV typically has to be pretty low because they want it to be, you know, secure for them. And what they're really targeting is these people that are in that exact situation of like, they are going to sell it for basically their debt position that exists now because of the way that the cap rates have gone. But they're willing to do a thirty year fixed note on it at rates that are typically like in the eights. So they're relatively high, but at least it's fixed and stable. And we've also noticed more and more of these companies, they're always very market specific where they will do this, but they're offering thirty year fixed loans on things like retail. Right? On industrial, like some of these, like, mixed use stuff that you've never been able to get thirty year fixed debt on before.

Mike DeHaan: [19:25] But the companies that do that, they'll be like, we only do it in, LA County. Yeah. Oh, interesting. Interesting. Only in Dallas. Right? And it will be in an extremely specific part of the country that they're focused on. But I imagine as they get more comfortable with product, that will start to expand. Totally. And what'll be really fascinating to see from your side, AJ, is like, if 30 fixed products start to get into things like self storage, that will change the game, I think, a really incredible amount. Oh yeah. You know?

AJ Osborne: [19:52] Well, and at these high interest rates, somebody's like, that's a great return for me over that time. So Yeah. You know, they're, they're fine doing it. Absolutely. Mhmm.

Mike DeHaan: [19:59] Yeah. Because the people that ultimately carry this debt are like the hedge funds, and they're happy to put eight and a half percent essentially bond as far as they're concerned on a highly qualified, what they view as stable multifamily asset with a highly vetted borrower. I mean, that's about as good as it gets for a lot

Dan Austin: [20:16] of them. What I would read on them too, it really just takes their credit analysts getting comfortable with the product, like you were saying, Mike. Once they get comfortable with the product, then they just, they have unlimited funds. They just start buying shit. Or throwing out debt. You know what I mean? So it's pretty cool.

Dylan Koch: [20:29] Well, one thing to tie like more of a macro picture into this too, we talked about the ten year, really all bond yields going up, not just domestically, but internationally too, in this perpetual search for yield that came out of COVID because cap rates were so low. With the ten year and thirty year being five plus percent, you would think a lot of insurance companies and pensions would be strong buyers of this. And they haven't really come out of the woodwork yet. And the theory that I was reading about is that they're tied into so much private credit that has lockup periods that if they tried to sell it, they'd not only sell at a loss, but they have to mark to market their books. It would be like a huge loss. They're basically hanging on to these positions in private credit that is maybe 50% of par value instead of buying ten, twenty, thirty year treasuries, which to them is the most secure thing they can buy because these are people's pension plans and insurance funds. So just another layer to add on to the macroeconomic side of

Mike DeHaan: [21:23] this.

AJ Osborne: [21:23] Yeah. That lockup is crazy on CMBS loans, everything else, because that's spread basically. So if you do a loan that's non recourse CMBS, it gets puts into a bond for people that don't understand, right, sold. So they're getting a yield on that return. If you wanna sell your property, and you wanna repay that debt, you have to make up the difference in the yield. So that difference in the yield and that penalty, when you have such a big spread is astronomical. So it doesn't make any sense to pay it back, sell it.

Dylan Koch: [21:55] And that delta is bigger, the wider, the more term that is left. You don't know what that's gonna be ten years from now. Right? So

Dan Austin: [22:02] Yeah. So actually prepayment is

AJ Osborne: [22:03] really good. It's really, really stopping them.

Mike DeHaan: [22:05] Yeah. I really feel like the standard amortization that they have you're always using some thirty years. Right? I don't know if there's a reason for that. But I feel like thirty years now isn't what thirty years used to be, because time is so compressed with how rapidly things change. You know, it will be interesting to see if they stop doing thirty year. Yeah. Is a thirty

Dan Austin: [22:24] year really their intention, is what you're saying? Is the intent of thirty years? Is it really a seven year? Like they say everybody sells their home in seven years. Like what is the, what are the economics based on, on a thirty year?

Dylan Koch: [22:32] I think they will create new products out of all this They have to. That help save this up. And maybe it's a blended, maybe it's fifteen year fix, and then it goes, you know, into the, or something, right?

Mike DeHaan: [22:41] Well, mean, a lot of other countries do that. Like, you know, even go up to Canada, you have to get a ten year adjustable mortgage. You have to renew your loan and get a new rate every ten years. A lot of Europe's like that, but then you have the opposite. You have places like Japan where you can get a legacy mortgage that I don't know if it's fifty or a hundred years, but it's extremely long. Right? But also there there'll be like negative interest rates because their properties are built in a way that they do fundamentally lose value.

Dylan Koch: [23:05] Well, here's the importance of buying right with value add and cost basis. I have a Exactly. I think it's like 20,000 square feet, a mixed use building that I bought in 2024, and it's a five one arm. And so like, it's going to come up the next couple of years. I'm going And like, my raise on that's like six. Obviously I was bounce. Yeah. Yeah. So, like, when I refinance out of that loan, like, it's obviously gonna be a higher interest rate. But like, I have the room because of the NOI increase to manage that. But like, not many people do and that problem gets worse, obviously, as AJ can speak to when the properties are bigger. You're talking hundreds of thousands of dollars in NOI, not just a couple, you know, 10 to 20,000.

AJ Osborne: [23:42] And two, you have we're talking a lot about the interest rates, things like that, but one of the biggest things that has gone on in storage and a lot of others is the actual rates that you get for rentals collapsed.

Mike DeHaan: [23:54] Mhmm. Yeah.

AJ Osborne: [23:55] So, and when I say collapsed, it was the largest rate drop in history, more than the great recession by a lot. In one year, it was like 20%. Wow. And that was averaged. We had a market where we had bought and we bought the, I call it the money on the table, just the spread from what it's doing and the spread from what the market's doing essentially, right? So it's like, okay, that's the difference. Like, I don't depend on interest rates coming down, market rates get like, no, if that happens, that's a cherry on top. But we were buying and the market rate for a 10 by 10 was $200. The asset that we were buying, market rate was a 150. In two years, the market rate for that 10 by 10 went to $60.

Dylan Koch: [24:42] Wow. That's a big

AJ Osborne: [24:43] drop. $60.

Dylan Koch: [24:44] Yeah.

AJ Osborne: [24:45] And that was happening everywhere. Because what happened was the REITs and storage economics work different. So that when you go to move into a storage unit, right, you look and you see what's the cheapest unit. Once you move in though, your demand profile and sensitivity changes. You're not just gonna move out. Because if you got a 30% rent increase, well, that is less than getting a moving truck to move. So people don't leave. So the REITs would tank the rates, and then they would jack up the rates 300%

Dylan Koch: [25:18] On renewal.

AJ Osborne: [25:19] After people moved in. So it allowed them to put rates down low. That was accelerated because of the technology, revenue management. They were trying to maintain occupancy. They sacrificed rates saying we're gonna make it up on the back end. You tie that rate collapse that we saw in storage to then that higher interest rates. Now you have either no or negative NOI growth and the interest rate doubled or the cap rate, you know, the cap rate interest rates doubled and cap rates went up at the same time.

Mike DeHaan: [25:50] Yep.

AJ Osborne: [25:51] That spread on that, you're talking about properties lost 50% of their value.

Mike DeHaan: [25:55] Yikes. Yeah.

Dylan Koch: [25:56] Yeah. And when you're against the clock because of your adjustable or bridge loan, that's the real problem, right?

Mike DeHaan: [26:01] That's the real problem. Yeah. That's super interesting. I think it's happening everywhere and with everything too. You know, it's not even just in just in real estate. I feel like all subscriptions, consumer goods are kind of a follow-up like that similar model. Right? As they they get their analytics to figure out what people will pay for convenience and different things, and then they just play that same same pricing game.

Dylan Koch: [26:20] AJ, can I it's on the same subject, but a little different? And it sounds like you're really into that data stuff. Can you talk a little this in broad strokes about how you think AI boost is gonna change your maybe even deal sourcing, but even how you're managing these things. And just as a quick aside, Mike, last week, I told you I was gonna try to build like an Ari Simply lite. It took me like thirty minutes today.

Mike DeHaan: [26:41] That's crazy.

Dylan Koch: [26:42] And I'm just like blown away, like, at how, like, editable it is too. Like, and so

Mike DeHaan: [26:48] And just one quick comment on that, and then I'll let you jump in. One of the biggest things, Dylan, that tells me how far behind a lot of people are with realizing that. So we had a Reel that we posted where I was talking about how I built basically PandaDoc with Claude. The amount of like hate I've gotten for that Reel is crazy. Crazy. Really? Crazy. And they're like, oh, yeah. I'm sure

Dan Austin: [27:09] it sucks. You're an AI capitalist, dude.

Mike DeHaan: [27:12] Yeah. They're like, I'm I'm sure it sucks. There's no way it's as good. I'm like, it's literally the same. It is the same for our team. Works exactly the same as our

AJ Osborne: [27:19] AI hate is one of the biggest psyops. I think It is so overblown. And two, the things that people believe about it are wild because it's like, what you heard that on social media and stuff, that is just arguably false. It's not real. Yeah.

Dylan Koch: [27:34] Yeah. But

AJ Osborne: [27:35] to just actually believe that the drought in the West is caused because of data centers.

Dylan Koch: [27:41] Yeah. Yeah.

AJ Osborne: [27:42] I their own water processing plants that use less water than the land that they took it from from crop. Like, there's just these massive lies around it that is interesting to me.

Mike DeHaan: [27:56] It is so interesting. And even on the consumer side, like so many of the comments from people, I was like, it's just very obvious that you've never used it before with what you're saying.

Dylan Koch: [28:03] Yes. I was just gonna say the same thing. Like, you spend ten minutes with it and you're like, oh, oh, okay.

AJ Osborne: [28:08] Totally. My opinion is this. Millennials are the new boomers. So if you remember, baby boomers, when the internet came out, everything, all the news, it's gonna take all our jobs. No one's gonna work anymore. This is gonna be a massive thing. We had Y two K. The world is going

Mike DeHaan: [28:26] Yep. To

AJ Osborne: [28:27] Yep. It was all fear. And all the baby boomers were like, this is dumb. I don't need to learn this. I don't need to do this right. And then millennials came in and adopted it. Right? And of course that changed the world. Now did it get rid of jobs and replace jobs? Yes. But the job creation was so astronomical.

Mike DeHaan: [28:48] Yeah.

AJ Osborne: [28:48] It was wild. And two, the Economics Magazine came out with a study. They showed AI jobs have created, over a million jobs have been created, not in AI, but in organizations around AI, and it's only lost a 150,000. So not only is it not taking jobs, we're not losing jobs, it's creating them. Because all these organizations, they're becoming more efficient. They're adding people in to do it. They're building. And we've seen that in our organization. We've adopted AI massively. We moved all our service center calls to an AI platform. So we tested it for about a half a year to maybe even a full year on like eight of the assets. Then we moved the whole portfolio over two, three months ago, saved 300 man hours. The average missed call in our industry for large operators, good ones, is 30 to 40. We're now below 10%. Call completions, because people like, they're like, I don't wanna talk to an AI, right? People don't wanna talk when they're trying to get a code. Yeah. I just want a code. Send me the code. Consumers don't care. They'll just perform the function and get it done. So our retention, our satisfaction has skyrocketed. They can get ahold. They can get those basic things done. Now, all sales calls are diverted to an in house sales team.

AJ Osborne: [30:20] If somebody does wanna talk to a human where they're like, for whatever reason, what not, that gets diverted too. But that is actually really small. The customers aren't saying we don't want this. They're going through it. It's interesting how the majority of them have no clue. Idea if it's an AI.

Mike DeHaan: [30:38] Yeah. Yeah. I mean, I think that's the key thing that believe that adoption is giving people that choice for as long as you can.

AJ Osborne: [30:45] Yes.

Mike DeHaan: [30:45] Right? On the customer end. But as soon as you start to like force function it, and if it's like a worse customer experience, that will build the Yeah. That's the But it's like, I always

Dan Austin: [30:54] say this, I'm always long on humankind. And when it comes to stuff like AI, like it is, it's a productivity increaser. It's gonna elevate productivity, which is gonna be good for humankind. It's just like the, you know, the .com era, like it creates a whole new industry, tons more productivity. So I know like in Mike and I's business, we could be vastly more productive. Our employees, we don't have less employees. We have more productive employees.

AJ Osborne: [31:16] They are

Mike DeHaan: [31:16] just, their life is easier because they come to

Dan Austin: [31:19] work now, they have an assistant. Everybody gets an assistant in our office. So it's kind of, I think it's great.

Dylan Koch: [31:23] The theoretical job loss is gonna be so sector specific. I mean, I think like software engineer. Right? But like everything else, it means you could add somewhere else to AJ's point. Like every technological revolution has net added jobs from the history of mankind. So I don't think that's really gonna go away.

AJ Osborne: [31:40] No. And two, also, their creative destruction is not just important. It is the cornerstone of progress and growth. If you don't get rid of old systems that are not as productive and as good as new ones, you literally cannot grow. There's nothing to do. So like creative destruction and as a part to be more efficient, do better output, people need to adopt to better systems and do more. That's just good. That's just good for us. And if you're a small business owner and you're not utilizing AI, I think people just look at big companies. AI is the biggest destruction of barriers to entry that I've ever seen. If you're in real estate, you now have access to knowledge and ability to execute that you could have never afforded ever. You were competing with firms that had all this knowledge, resources, and capabilities. You know, I think I've even liked the REITs. What we can do today, four years ago, was exclusive to them. They were the only ones that could. They were the only ones that could pull those resources. The only ones that can execute. We have whole programs for off market deals now. You can have basically an asset manager on your computer to help you do analyzing, to help you run things that you would have had to pay somebody $150,000 that you could have never afford, so you didn't do it anyways. It's not like you didn't hire it.

AJ Osborne: [33:13] So for small people starting out, small employers, it is the greatest opportunity for you to have a competitive advantage to fight, compete, make better products, services with big players who can destroy you that we've ever seen.

Mike DeHaan: [33:31] Yeah. Absolutely. And and if you have a small business, you don't know where to start with that.

Dan Austin: [33:35] Because I think

Mike DeHaan: [33:35] that's where a lot of people kinda get hung up. Just find like a piece of your business that sucks. Go and sign up for a cloud account for if you're gonna build a tool around it. Right? And just tell it exactly what you need it to do. There will be a little bit of massaging as you figure out what, you know, you you kinda want put together. If you don't know how to, like, host it or any of that sort of stuff, just ask Claude to tell you how to do that. It's absurdly easy, and it will walk you through the entire process. And start with something small and build from there. So like, we've built our entire loan company's back end. I've done this myself for the last six months. But everything from like our pricing engines to like our full document underwriting, like puts everything together, does all of like our closed doc stuff. We now have a sync up with like our mail processing, our servicing, everything is in there. But it started back in April, where all I wanted to do was take the kind of crappy spreadsheet that one of our main note buyers sent us for pricing that was really cumbersome to work through. And I just turned it into an online calculator so that our loan officers could do something digitally instead of having to go through this kind of janky Excel spreadsheet.

Mike DeHaan: [34:37] First one took me five hours. Now I can make other versions of that in about five minutes. Right? And you can just bolt things on. And the trajectory at which you can really enhance your business is like unbelievable. And you do that for anything. Like the sky is literally the limit.

AJ Osborne: [34:51] And if you don't know what to do, I always tell people, ask it.

Mike DeHaan: [34:54] Yeah. Ask Whatever you have. Ask it. Go into Cloak. Totally.

AJ Osborne: [34:57] Like build out a project, upload everything you can about your company, right? Upload your organizational chart. Upload your vendors. Upload any processes or systems that you have, upload it all. Tell it what a normal day looks like, what people are doing, job descriptions, everything else. And say, I want to create a better outcome for my customers. I want to do it faster with higher quality. I don't know where to start. Here's all the information about my company. Will you please give me suggestions on how you can assist me so that I can become more efficient, better outcomes, more productivity, manage my expenses, increase my revenues, and just start pointing me at some areas that you can help and assist me with. That's it. You don't even need to know where to start.

Mike DeHaan: [35:47] Such a great point, AJ. Some of like the the best features that we've built in ours have literally gotten it gotten like the shell kind of built out. And I have just said to it, I said, I want this lending company to be one of the best companies for people to work at. I want it to be seamless and for them to not have to spend a bunch of times doing mundane tasks. Do you think would make this a really good product for them to use? And then we'll say go, oh, here's eight things I think would be great. And I was like, those are great ideas. I didn't even think about those. And I'll say, yeah, let's just do all of them. And a lot of the things that have come out of that are some of the things that people regularly say are, like, their favorite parts about the platform. It is really fascinating.

Dylan Koch: [36:23] While you guys are talking, and this will tie back to something we talked about earlier. My main county here in Cincinnati actually has a pretty good UI when it comes to like land use codes and like how to find certain asset types. It has nothing devoted to this storage. Like Really? Yeah. Like data aggregation, like to his point, like it would be very hard to like go find this. It has office storage over and condominium storage unit, which I don't know what that is.

AJ Osborne: [36:50] That's like people own the actual unit. So it's a big like man cave kind of thing, you

Mike DeHaan: [36:54] know, for a living.

Dylan Koch: [36:55] Yeah. And then retail storage over, but no just like self storage.

AJ Osborne: [36:59] Self storage.

Dylan Koch: [36:59] Yeah. So like even that, like and I we're a decent MSA. Like, if you're trying to gather who the owners are, it would even be difficult at the county level.

AJ Osborne: [37:07] Yeah. And that's why we created Trackt IQ. Like I think somebody else did, they created a built in, I'm just the investor sitting on the board on it. But Trackt IQ, does all that data aggregation. And I think with AI, with all this, like to say every company is a tech company. If you don't know that, that's a problem. Like you need to have a tech stack. You need to be going. Because first of all, it doesn't matter. Services, products, anything else. You're selling online. You're getting customers online. Your tech stack needs to be running, organizing your systems, your processes, your communicate. Everything we do within a company to run that company is based on software platforms, data, technology, from communication to everything. Right? And so the big thing with AI is data. Right? We've spent fifteen years trying to accumulate data, build data, then build software products that we now use AI to analyze and to take in this mass amounts of data. If you have a company or if you're an investor, right, You need to build out and record everything you're doing. So like most, especially small businesses, they don't really have processes and systems. That's first of all, your biggest problem. You need to record everything that your company does so you know and can understand, you can upload that, and you can build out from there. But the first point is giving it the information and the data to help you and do anything that you want it to do. And that's actually a good exercise for everybody to do because you should have that without AI anyways. Right?

AJ Osborne: [38:47] Right.

Dylan Koch: [38:48] Right.

AJ Osborne: [38:48] But data is the name of the game when it comes to AI.

Dylan Koch: [38:52] Yeah. I agree.

Mike DeHaan: [38:53] Absolutely. Super good point. Well, awesome guys. It's probably a pretty place to wrap up here. Is there anything else you guys wanted to add? Anything you wanna add, AJ?

AJ Osborne: [39:00] I think, you know, we kinda talked about economics, what's going on with interest rates, everything else. I would add, I've been through 2008, right? We've been through the high interest rate environment, everything else. Don't expect conditions to necessarily change because that's not going to happen. And two, in a lot of areas, it's going to get much worse before it gets better. But with that, the opportunities. So today, the opportunities are the best opportunities we've seen since back in that. You're buying, you know, we talk about cap rates and value. On the same exact income, you're getting a 40% discount in value, even though income hasn't changed. And if you stick to fundamentals and make a good buy box, make a good outline, you can buy, and these are deals that change your life. The deals after 2008, we did change your life. Know, we were really lucky. We never lost a deal. In 2008, we never lost anything else like that, and we stacked up afterwards. But when we were buying during that time, it was really scary. We didn't know what was gonna happen. Nobody did. People looking back on it is funny because they're like, yeah, I'd buy if I could go back, I'd buy everything. But yet those are also the people that aren't doing anything today.

Dylan Koch: [40:17] Nothing. They're waiting for it to get back to those levels. Yeah.

AJ Osborne: [40:20] And when it does, the values have already increased. Everything's already changed.

Dylan Koch: [40:25] Yep.

AJ Osborne: [40:25] And now you don't get that value. So I really believe when you look at what's going on right now, you need to set aside what are the facts? What does my underwriting say? What is the things about this market? That intrinsic value of the asset. And really try to check where emotions that have nothing to do with that strategy, nothing else, right, are convoluting that. Also, you need to be able to survive and last. Like, that's a really big thing. We got slammed in some of our markets. Absolutely slammed, right? We had properties in two or three markets where rates dropped, all of a sudden, interest rates, cap rates go up, you can't exit, you can't do anything else. You need to be in a position and structure it in a way that you can survive, and you can just hold onto that asset, build it up, make it good. And if you can do that, then you can let the market do what the market does, and not have it dictate what you do. And that's really hard. I mean, I know you guys are in real estate. You have struggling assets in a time that's really hard. You're trying to survive, make it work. To then also say, I'm gonna have a view of the future and I'm gonna go out and buy, right? That's a hard thing to be balancing. We're struggling here.

AJ Osborne: [41:42] I've got assets that aren't doing good. I've gotta try to fix them up. I gotta do better. I got all these plans. At the same time, when I'm dealing with that, I also need to realize the opportunities that that creates in the marketplace and take advantage of it. Because the problems are why the opportunity exists, not the other way around.

Mike DeHaan: [42:02] Yeah. What you said there, it's so much easier to do when you're in a position of financial strength. Right? One of our our mantras for the show for a long time was to focus on making a massive income before a passive income. And I think where people get bit is they try to do the opposite. So then those assets that are not performing, they become a massive liability, because they don't have the income or the financial capacity to actually deal with that.

AJ Osborne: [42:24] Yes. I could not agree with that more.

Mike DeHaan: [42:26] Yeah. You're totally right. And I think that that is right now more than ever, people need to realize that, because that pain is probably gonna last a lot longer. So if like you're broke and you're trying to do something outside the fundamentals, right? Those are the ones that are gonna really end up getting into the biggest trouble here.

AJ Osborne: [42:43] Well, and to really put like on that, one of the reasons I think, you know, we've been fortunate, our firms have been fortunate is during the time that we built without investors, everything else, I worked another job, right? I had another job. All my money went into real estate. We keep a low debt load, 50 to 60% LTV across our property, which, know, today it's like no bank is going to loan you more of that. So it's forced anyways. But you keep and manage that. But at the same time, even when we went through struggling times, because before we ever took any investors, we were independently wealthy. We had other companies. We had our own real estate portfolio that allowed us to protect us and investors, even in assets and things that were struggling, right? We never had to give a capital call. We've never lost investors' money. We never had a capital call for any distress, anything else like that. But that came at our loss. Meaning I put in over $3,000,000 because we didn't take fees. We also supported those ones that were struggling to protect the investors. Because we knew we just gotta, you gotta get through it and you gotta go. If you don't have that ability, you're out of options. You can extend further than you can do. So for us, you know, we could look at it and say, I'm the largest investor in our whole company and portfolio by far. Everything we bought, our last portfolios, everything we put in personally, me and my partner, we put in over $15,000,000 And so us, we make our money on our investments.

AJ Osborne: [44:15] We don't make money from investors at all. I've never made money from investment fees. That's allowed us to scale why there's problems and struggles. And two, that's a big scope inversion. Shrink it down to a smaller one like we were doing when we were first buying properties that were $200,000 I kept my job. I bought properties. We bought low debt, fixed interest rates. So then when we were buying these small teeny properties in Nowhere Land, Idaho and everything, after 2008 came, I still had a job. We had our properties, right? They had low debt, fixed interest rates. We could go out and buy more. You have to have your financial side right, and you have to be able to weather the storms. I think that's just so important, Mike. I could not agree with that more.

Dan Austin: [45:06] That's great. Awesome. Well, gives you a it gives you the ability to have a long term vision, man. So Yeah. That's that's what's important.

Mike DeHaan: [45:11] Absolutely. Awesome. AJ, thanks so much for joining us today, man. It was super good to have you on the show. And again, I apologize for two weeks ago. I'm glad we got it squared away. And, everybody, thanks for listening. Go and shoot AJ a follow. Check out his stuff if you're into self storage. And besides that, talk to you guys next week.

AJ Osborne: [45:26] See you all soon. Guys.

Mike DeHaan: [45:28] This episode is sponsored by Sir Lenzelot LLC, also known as SLA Capital, which, if you didn't know, is Dan and I's private lending company. So, yes, we are sponsoring our own show, but what you're gonna do about it? It is our private lending company that offers hard money and DSCR loans to real estate investors of all types. So you can be a new investor, an experienced investor. You can be buying flips. You can be buying rentals, whatever. We can do everything. And not only that, but the rates that we offer are just as competitive, if not cheaper, than pretty much every other company out there. So whatever big company you've been working with, bring us their term sheets, and I guarantee that we can probably beat it. We have the same connections they do. We just don't have all the overhead and middlemen. So if you wanna come and check us out, go to slacapital.com/keys, and I will know that you came from the show. And by seeing that you came from here, when you get the closing, you will save $500 on your first loan with us. So slacapital.com/keys, we would love to fund your next deal. Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike Invest. Dan is at investor man. Dan and Dylan is at Dylan underscore does underscore deals. Choose to follow and send us a DM to let us know what you think of the show.