Lincoln: Welcome to Funds That Won, where we dive into some of the world's most renowned investment funds. We'll interview investment managers across the alternative landscape and learn how they built their million and even billion dollar asset management empires. We'll explore teams, structures, strategies, and best practices in launching and running alternative investment funds. Today, we've got Ryan with Spartan Investment Group. Ryan, welcome on to the show. You're having me, Lincoln. Yeah, why don't you start off by just giving me the elevator pitch on Spartan Investment Group.

Ryan: We started in 2014, and my neighbor and I, Scott, actually, we met as neighbors and started a self-storage company that's the 36th largest self-storage operator in the United States now. We've got about 60 properties, 13 states. We've got about 650, call it, million assets under management. And what's really neat about what we do is we actually have a construction company that builds our self-storage properties and renovates the ones that we buy that exist. And we're strictly a retail investor network. So, you know, all $50,000 minimums on our investments, we've raised about $300 million that way. So we have about 1,100 active investors all over the country. a couple of international investors as well. But we pride ourselves in our due diligence and our values, our adherence to our mission, vision, and values at Spartan, where we really take a lot of pride and care in taking care of our investors and having top-notch communication. So that's a little bit about us.

Lincoln: Yeah. I love it. And you said, so you primarily have raised from high net worth investors, it sounds like.

Ryan: Yeah, doctors, lawyers, people that run their own businesses, people that are in the C-suite, and a lot of folks that have had exits where they want to preserve or maintain their family's legacy wealth. But all over the map, really, everybody from a high-paid professional to somebody who's had a pretty significant exit in their life.

Lincoln: Yeah. Why is that? Why have you targeted that demographic? Do you have plans to go after an institutional allocator base or do you want to stay with retail or how are you guys positioning?

Ryan: You know, retail's worked out really well for us. You know, I know that it sounds like a nightmare to an institutional guy to have, you know, a bunch of investors running around, but I feel like we've got a good system. We really have a high touch approach to all of our investors. We have a lot of touch points, you know, checking with our investors on a monthly basis for updates, you know, sharing full financials. doing updates, whether they're good or bad, and having teleconferences with our investors every quarter. We've scaled that really well. We are looking for an institutional capital partner. We've done the rounds in the last month or so, and we're looking for a seed portfolio investor and then some go-forward money. Um, as we look to scale to 5 billion AUM, that's in our three-year roadmap. Uh, so we know that we can't get there all with our retail money, but we still want to have retail investors, uh, participatory in everything that we do and benefiting from our, from our investments. Uh, so the answer is yes. Uh, but we still plan for a very long time to have retail money.

Lincoln: Gotcha. And so are these primarily Reg D products? Uh, right. All of your fonts.

Ryan: All right. All, all Reg D.

Lincoln: Okay. And so how do you get around investor limitations? What type of filings are you guys doing there?

Ryan: Yeah, and so I'm not an attorney or giving tax legal advice, but my understanding is, you know, we do it under two offerings. So we do 506C, which is really no, there's not really a limit per se. I think the limit is about 2,000 or 1,999. And we're far below that for our funds. You know, our funds are a little bit smaller. And then we do a lot of single asset syndications. So our raises are anywhere from five to $10 million at a time. So we never have that limitation. We do from time to time do investments under 506B, which allow the non-accredited investor to participate, the sophisticated investor. And you're limited to 35, but the reality is, is we don't even have that many participate, not even close. We might have, you know, less than 2% of the, of the stack be non-accredited. We're mostly just accredited investors under 506B or 506C Reg D.

Lincoln: Gotcha. Well, cool. Well, let's shift away from investors here. Let's talk about your product. So is it primarily just, you know, co-mingled blind pool funds that you're operating? Do you do single asset transactions on the side, SPVs, or, you know, what is your kind of product mix looks like?

Ryan: Yeah, I would say our bread and butter is we've really gotten down the single asset syndication. So buying one self-storage at a time, or maybe it comes with a handful that are in a portfolio, and we will do that as a single syndication. So the investor has the knowing that they're investing in a specific property. Our funds, we have done funds, we've done four funds to date, and those funds are closed-ended. So they're not, you know, evergreen or open-ended. And those funds are typically five-year holds and we're targeting value-add self-storage. And we even had a fund this year that targeted just ground-up development. So we looked at facilities with the most upside potential. So I would say we do a mixed bag where if an investor says, hey, I really just like the deal-by-deal stuff that you guys do. I like the story around the individual asset. We have that if the investor says, you know, Hey, I, you know, I really want diversification across multiple facilities and multiple markets. Uh, we have a fun model for that as well.

Lincoln: Gotcha. So how do you navigate, you know, any potential conflicts of interest between your single asset transactions and your fund? Are they like different buy boxes entirely? Or, you know, what does that look like?

Ryan: Yeah, different buy boxes, absolutely. So that there's a fund that focuses just on our ground-up stuff. And so, you know, anything that we did ground-up development last year fell within the fund. That fund is sunsetting because obviously we can't raise capital for more than a year in that fund. So that fund is going to close out and then we're going to do a couple of single assets indications that wouldn't compete with that fund as that fund sunsets its capital raise period. And then on our income fund, same kind of thing where we target cash flowing facilities that exist, where we would fill up that bucket. And once that fund closes, we're going to start doing some single single assets indications. And we're planning on doing that in the new year where we already have stuff in the pipeline. That's going to be its own transaction.

Lincoln: Fascinating. So, you know, I was, I was looking at your website, it looks like you do, you've kind of, you know, you've got an income product, you've got a debt play, you got to kind of a growth play, like talk to me about really well, you know, how those products came to be, and which one you started with first, and how you kind of built upon that, you know, basis from like a foundational product perspective.

Ryan: Yeah, we really got our start in ground up development. I know that that's kind of rare where people are usually kind of risk off on that. But we have a base of investors that are really risk tolerant and want to see the most potential upside. And that's what you're going to get in a ground up fund. we probably have the best track record in finding and acquiring property at a low basis and doing some pretty sophisticated entitlement on the project, and then delivering that opportunity when the product is fully entitled and permit ready for our construction company to come through. And then we've gotten a really great reputation on construction. So our contractor, our in-house construction team is now about 20 people. and operating in seven states. They're fully licensed general contractor in 13 states, I believe. And we build about a half a million square feet a year. And so we're actually building storage internally for our products. And we're also building for others as a third party construction company. So You know, combining the, the strong entitlement prowess that we have with the construction side, you know you fuse those together you can get some really nice projects that are built on time on budget and have a lot of de risking in that so the growth fund is is what we really you know, I, I would say it was my favorite fund of 2023 and we can get into why later, um, just kind of where we are in the market market cycle, um, difficult to finance construction right now. Love that because it just, you know, it makes it so inventory drives up and deliveries are down, um, which is going to bode well for those products. Um, but then we have those investors, you know, that are doctors, lawyers, engineers, um, maybe they sold their practice and they're looking for that cashflow. Yeah. And so the income product is really for that person who says, Hey, I really just want to have income replacement. Uh, we can match that investor to, uh, an existing self-storage, uh, fund that has cashflow day one and has that monthly income that they come to get. And then, you know, obviously there's going to be a little upside in that that's an equity fund. Um, so you're going to get a little cashflow and then you're also going to get some upside. So you kind of have that nice, uh, blend of risk reward with, with, with some immediate benefits. The debt product is really the least risky of the three in terms of having that consistent monthly cashflow, being in a promissory note, being in a collateralized position. And we started that because we've had private debt lending. We've done direct lending for our investors since 2017. where we just have situations where the lender doesn't want to fund the construction period of a project, or they don't want to fund the improvements of a project, or we just decide to buy a property with all of our investors' cash. We're balancing the debt and the equity. So the debt fund is a flexible vehicle that provides consistent cashflow for our investors with no upside. So it's a 1099 INT. Really, if an investor comes into our ecosystem and they want to harness the power of self-storage and be in this market, they can kind of self-select with what risk profile they have and marry that to what they really want to, where they want to be in the cycle. Do you want to be on the building side or do you want to be in the cashflow, more core plus stability side? So that's kind of how we came to design those three funds. Um, and it's, and it's worked out. I mean, I think the income fund this year has really been, or I should say 2023 was really throttled back by just high interest rates and low cap rates. I mean, self storage was one of the least impacted and from a value perspective. So we still saw the industry at a 5.3 average, uh, cap rate. Wow. With interest rates, you know, above seven, you know, it's hard to make cashflow in the, in that environment. It's, you know, it's, you know, unless you're doing some steep value add. which, you know, we had low transaction volume in the industry this year. So it was very difficult to find something that cash flowed. But, you know, so the private debt or the debt fund really helped that out. You know, hey, if you want to have that nice barbell strategy of, you know, having some risk, having some debt, you know, investors really, you know, we saw a flight to sort of do both, you know, where they have some some income coming in from the debt fund, but then they also have that, you know, nice 20 plus percent premium on a on a ground up development.

Lincoln: Gotcha. Now, are you lending, is the debt facility, is it lending on some of the same assets in your other products? So you're basically just taking different capital positions on the same asset or do they operate in completely separate markets?

Ryan: No, it's, it's exactly what you described in the, in the, uh, first iteration. So, you know, we, we will, you know, go by for a great example. We, we, we bought a property in, uh, in Florida where we did a ground up development. And so the debt fund comes in, uh, we leveraged that fund less than 65%, um, in the first position. And so that would be used to build our, our storage because right now, you know, a lot of banks are, either pencils down on ground-up construction or they want to do a floating rate, which I know, you know, speculation is that rates are going down, but the way we're underwriting is rates are going up or not coming down anytime soon. So, you know, we like to have that fixed rate product. And then we know that at the time we get a certificate of occupancy, we can kind of recycle that money with regular local bank money that comes at a fixed rate. Um, so it's, it's just a nice balance of being able to kind of properly capitalize our investments and also share in the, in the cashflow with the investors.

Lincoln: Yeah. I had a conversation yesterday with a manager who manages about $1.6 billion. And across that $1.6 billion, he's only deployed, it's a venture, he's only deployed into 20 to 25 assets across four or five different funds. And it's because he's doing the exact same thing you're talking about. He's like, if you have winners, why would you why would you focus time and effort on new deals? Just take different positions on the same transaction. So I think that's awesome. So you saw that need in your own assets. You're giving all these great debt positions to primary lenders. And you said, hey, why don't we just do it ourselves, right?

Ryan: Absolutely. And the investors only benefit. And I think in the new year, we'll probably be thinking about standing up more direct lending opportunities. I mean, that's where investors are going right now. You think about it, right, right now, you know, it's like, where do you put your money? You put your money in a high yield savings at 5% or whatever you can get. And if you've got a special bank relationship, maybe that goes into a high fives a percentage or says let's, let's risk off money. Or, you know, you can find one of these funds, these, these direct lending opportunities that maybe pays a 12 or 13% coupon, um, on a pretty stable opportunity. And so when you think about that, it's like, why would I want to go you know, a little bit more in a, in a syndication that's, you know, targeting a 15% annual return with maybe 4% cashflow. It's like, you know, you can lock in 12 or 13 right now and it's, it's a good thing. So I think, you know, that's why we've, we've seen, you know, this, this inefficient market investors flocking to you know, private lending opportunities. And so we're going to do a lot more of that this year. And it, and it just helps us have flexible capital to, to continue to deliver great projects. And I, and I think what's, Interesting is, you know, self-storage, um, construction lending is up or, you know, it's down that, you know, banks aren't, aren't sending out as much money. They're, you know, the interest rates are super high and, uh, you know, it's, it's getting harder for projects to pencil. So it's, it's, it's boating well for new product coming to the market now, um, because it, uh, self-storage deliveries that are all time low. So it's a, it's a cool opportunity to sort of take advantage of the inefficiencies and, and, you know, create great investment opportunities with our existing investors.

SPEAKER_00: Yeah, gotcha. Hey guys, thanks for listening. As you know, we don't run ads on this channel so if you could really help me out, if this podcast has added any value to you or your business, please subscribe, rate, and review.

Lincoln: I would appreciate that greatly. Thank you. Where it's all on the same asset, jumping into the weeds here a little bit on this private credit product. Do you structure that as basically essentially a preferred rate of return? And then do you keep the upside on top of that? And if so, where does the upside come from essentially?

Ryan: Yeah. So let's, let's talk about, so let's, let's break it into two buckets, right? You have equity and you have debt. Um, so on the equity side, the investors are taking, um, a, either a 12, 14 or 16%, uh, preference or preferred return, um, on the deal before any splits are made with a sponsor and then any profit from sale, they're going to get a favorable either 70, 30, 65, 45, or 60, 40 splits. So depending on their investment amount, the more you invest, the better your, the better your preferred return and the better your carried interest. So highly favorable to the equity investors in that fund. And they are going to benefit from the project when it's built and sold or recapitalized. So the risk they're taking really is from the day that the shovel goes in the ground until the day that the facility has either been fully occupied or sold that certificate of occupancy. And what I love about that is there's three real main points that the investors could potentially benefit. If we were to decide to entitle and sell the land as a permitted project, they could benefit from that in a year. If we decide, hey, we're going to build this thing, which we typically do, and get it all the way up to Certificate of Occupancy, we could decide to sell it at that point in time at Certificate of Occupancy. And then lastly, we could go through the lease up, which is going to take three years, right? From the time that we build the project, you know, a 36 month lease up right now is pretty typical in this industry, in this market that we're in. And so they would benefit from the value that's created and building, you know, having this entitled site, that's now a brand new storage facility that's fully leased, you know, in a class A product. And so that's how the equity investors benefit. The debt fund investors, it's pretty simple. It's a loan. It's a promissory note. So it's, you know, you're going to make, uh, right now our debt fund, um, that's sun setting pays, uh, 9%, uh, with a two year redemption option or 8% with a 90 day redemption option. So you're going to get 9% per annum. It's paid monthly and, uh, it's collateralized against that asset. And you get a promissory note with that.

Lincoln: So if I can ask you a blunt question, so do you make more money on the private credit product?

Ryan: We don't make any money. Really? None. Zero. So we actually don't charge any fees on it. It's just a straight pass through to the investor. So yeah. Yeah. We would, we're going to change that. I think.

Lincoln: I was like, help me understand this here.

Ryan: I mean, we're, we're, we're making, I mean, listen, like, let's be honest, we're making our money on the deal. Right. So if we're making money on the, on the debt and the deal, and it's like, it's like, there's gonna be nothing left over for anybody. Right. So we could probably charge a point. to the investment and collect that point, we could probably charge some fees on it, but we just don't. We just said, you know what, this is just a debt product and let's make sure the capital is allocated and investors are going to benefit and let's make the equity, let's make the capital stack in the actual project as efficient as we possibly can make it. No way. And we charge our fees on the, you know, on the equity side, we're going to charge, you know, typical acquisition fee, typical development fee, to do a construction deal like you would see in any other product, right? Any other operator that's professional and has a team that they have to pay, you know, our fees are pretty typical on the equity side.

Lincoln: So you give it all to the investor.

Ryan: all of it, a hundred percent and it's fixed. So it's not going to adjust. I know someone like yourself will appreciate this, right? I mean, cause you probably look at a lot of different debt products, but yeah, it's a, it's a pretty attractive, no fluff. I mean, it's not like I'm saying, Oh, well this, you know, there's a preferred return in the debt fund or anything like that because we're cycling capital in and out. It's very efficiently placed and it's just a, it's a straight pass through to the investor, which I think makes it pretty unique.

Lincoln: Okay. When did you, when did you bring this product to market?

Ryan: We started that in, I believe, April of 2023. Oh, okay. So it's fairly recent. Fairly recent. Yeah. And it's, it's a closed ended fund, uh, so that it will close because, you know, we can, we can only, you know, uh, raise for it for, I believe 12 months and then we have to shut it down.

Lincoln: So, you know, no, no, no. Is there any management fees on that product? No management fees. So just reimbursable fund expenses at it and then that's it maybe, or not even that.

Ryan: Not even that. Yeah. I mean, where would you generate the cash from? Right. So it's just coming. It's just a Spartan expense, you know, at that point in time. So yeah, we tried to be really efficient with it and make sure the investors, I mean, the investor gets a, you know, nothing is guaranteed. Of course, you can lose your money and all that. But, you know, the investor is on a promissory note for 9%. or eight depending on their, you know, liquidity preference. And the, and the way we run this is basically said, Hey, you know, you got a two year redemption option. Um, you know, it's, you know, and all the typical disclaimers, you know, first come first serve funds have to be there, but you know, if we can't redeem you, then we can't continue lending to new products, et cetera, et cetera. So, you know, it's, it's aligned, but you know, it's got all the typical, you know, caveats to, to make sure that, you know, we don't have like a run on the bank or something. So,

Lincoln: Well, that is awesome. I love to hear stuff like that. I always say that the number one rule for investment managers is make your investors money. And if you do that, everything else will work out. And so that's awesome. That's really cool. Well, take me back, Ryan, to when you guys started. So I'd love to hear a little bit about your background, kind of what led up to the inception of Spartan Investment Group.

Ryan: Yeah, I love that question. So we, you know, I was an airline pilot, and, and Scott, my business partner was in the military, served in Iraqi Freedom, and is a veteran in the Army. So he, so him and I met as neighbors and, uh, one day he was walking on the street and I convinced him to, to, to buy the house that was for sale for me right next door. And, uh, and then he convinced me to, to do this, do this, uh, the business, the business side of the house. So we never really were focused on real estate. We didn't really have much of a real estate background. Um, this is back, we met back in 2011 and, uh, you know, really what we had to focus on was building companies, building brands, building culture. and building a place that we really wanted to go work. And I love my job in the airlines, but Scott was working for the VA and he really wanted something that wasn't as bureaucratic and he wanted something to really make his own. So we created a company that has a vision to improve the lives of our employees, both personally and professionally. And we both had this common belief of We want people, you know, you can't, you got to bring the whole self, right? You know, in the pilot world, military world, families are such a big part of the success of the of the pilot or the military person. So, you know, we really have a strong culture at Spartan. I think if you come to our office in Golden, Colorado, or even Seattle, Washington, you'll see right when you walk in the door, you'll feel the culture. It's all over the walls, it's in the employees, and we have a very good alignment of people that kind of culminates to our strategic plan. So every three years we do a new strategic plan. We do annual roadmaps by company, by department, and everybody's aligned around one common mission, vision, values. And so Scott and I really aligned on that. And he has a great background in strategic planning, military decision-making process, used a lot of the military strategy in the company and does that and embodies that very well. My side of the house, coming from the airline operations world, coming from a sales background, I really got focused on building up our retail investor network, networking with investors, doing webinars, conferences, podcasts, things like that, and just really kind of built up a big network of investors that primarily came through really great communication and just good results with a ton of referrals. We have people that refer a lot of people and that sort of builds up our brand. And of course now we advertise and we sponsor events and things like that. So that's really kind of where it started. Self-storage is great. I can talk for an hour about self-storage investing and why we picked that asset class, but really we wanted to find something that we could scale a company and a business on. And self-storage was very fitting. At the time, we were doing condo development in Washington, D.C. and home development. We didn't really see that as a very easy-to-scale model, so we picked self-storage because it was easy to own, easy to evict, easy to maintain. And then we looked back over the last 40 years and said, okay, this is an asset class that has really been recession-resilient. It's not recession-proof, but it's resistant to changes in the environment. Usually it does pretty well when the environment Maybe isn't doing that great as compared to other asset class types. I mean, it still gets dinged, but not as bad as, you know, say a mall or office or, you know, multifamily even in some situations. So we just got busy on building a plan and, and really scaling Spartan. And so we've, we've. We've really built up a solid leadership team with individuals coming from the REITs. We've recruited from the publicly traded REITs like Extra Space, StoreQuest, et cetera. And we've built up a free up storage company. That's our storage brand. And so now we have an entire leadership team there. We have our leadership team at Spartan and then our leadership team at the construction company. And we've really just been focused on growing leaders that can run a really good cultural backed organization. And that's kind of where we're at today, about 150 employees.

Lincoln: Is that including your services company? Like your property management company?

Ryan: That's right. Yeah. About 150 employees.

Lincoln: And how many, sorry, how many are at your fund and how many is at like the property management?

Ryan: Yeah, that's a good question. I would probably say it's about 60 at the property management company between leadership and field. Construction's probably 20 or so. And then I would say the rest, well, maybe more than that. I guess probably maybe I would say probably at corporate and the fund are probably about 45 employees, 40 to 45 employees. That's asset management, that's legal, HR, capital raising. We also do capital markets in-house. So we actually do, we go and source our own debt, you know, think analysts, you know, rev man, stuff like that. So I guess it's probably, you know, you know, 40 to 45 people at the, at the fund level.

Lincoln: Gotcha. Okay. Sorry. Back to Inception story there.

Ryan: Oh yeah. You're good. Yeah. Good questions.

Lincoln: Um, okay. So your first asset, let's go like, you know, your first self-storage asset, did you guys take it down with your own money? Did you syndicate it then? Uh, and then how many, I guess, how many syndicates did you do before you launched your first fund? Like kind of give me like an evolution of your, of your product mix here.

Ryan: Yeah. So Scott and I brought 300 K to the fight and, uh, you know, we're not, we're not big, wealthy, you know, we, we come from, you know, pretty humble backgrounds. Um, we saved up money just from trading time for money, you know, working at the airlines, working at the VA, working in the military, et cetera. And, uh, we just did our own first three deals cash. You know, we just found our own money and did our own deals. And then, you know, we, we, we had a pretty good, uh, you know, pretty good opportunity to find some, some great projects. And then we had all our money in those, in those deals. And I, and we sort of had this epiphany of like, okay, well we found more deals that we want to do. And what do we do? You know? And it's like, Hey, we got some buddies in the neighborhood that know, like, and trust us. And they see us as, you know, good business people. And so they started investing and, and then we go, oh, well that's called syndication. Oh, that's like a thing that people do, you know? And so we went, you know, and got trained and hired attorneys and things.

Lincoln: And timeline, when was this exactly? Sorry. 2015. 2015.

Ryan: 2015. That was our first official syndication, uh, was December of 2015. Uh, we raised 455,000 and, uh, and so, you know, we just said, Hey, this is pretty cool. Like you can just sort of pitch to friends and family and, and then, you know, and then all of a sudden, you know, they tell people and, you know, and then there's more and more and more and more. And, and then you sort of, you know, get, get your, get networked out there and they, people hear about you're doing deals and, you know, you're doing a good job and you put together, you know, good, good, solid business plans that people can identify with and are simple enough to understand. And then you just, it just blew up. And, you know, we had, when we went into self-storage, you know, obviously there was a lot of education that went into that. It took us like a year and a half to do our first deal. It took a long time. I mean, we said, Hey, we're going to do self-storage. We're going to go around the country and we're going to meet everybody that does self-storage. We're going to go to all the conferences and the trade shows, do some deal analysis. And I think maybe it actually took us about two years. Actually, it was two years. So we decided in October of 2016 to start looking at self-storage and our first deal closed August 2018. And it was a very small project. It was 14,000 square feet. which is like, we wouldn't even buy that today. It's too small today. But, you know, we found it off market. We were sending letters to property owners like everybody else does. And, you know, the seller was an 80-year-old military special forces guy. So he identified with Scott and just, you know, we bought the property. He insisted on seller financing. And so we raised a little bit of money from investors. And really just from then on, we've just been raising everything. Every deal we've done has been a syndication. You know, I think, I think the, the return on, on capital is way more efficient if you can share it with your investors. Um, and we've scaled the company that way, um, since the beginning.

Lincoln: And then when did you introduce funds to the mix?

Ryan: That was in 2022. 2022, we said, hey, you know, it kind of feels like we're just buying a lot of the same stuff. Is there really a reason to stand up a PPM every single time we buy? you know, a three to $10 million property. It's a lot of work. It's a lot of K ones. It's a lot of coordination. I mean, if you, you know, you'll, you'll appreciate this in 2021, I think we bought 26 properties and $280 million. And I think that comprised like eight or nine PPMs, um, you know, in a year. So it was, it was busy. Yeah. You know, it, it, you know, the sort of dawned on us, it's like, you know, the investors would start asking like, what's the difference between this one and that one? I'm like, well, I'm like, I'm not really allowed to give investment advice, but, you know, you know, kind of the same problem. I mean, there, one's a value-added storage, one's a value-added storage. Do you like Madison or do you like Texas? I mean, what's really, what's the difference? And so, so we pivoted to the fund model and, you know, it was interesting, you know, a lot of people were encouraging us in our circle to go to the fund, you know, go do a fund, it's easier, it's simplified, it's streamlined. And they were absolutely correct. I, you know, I think, You know, investors want to know their deals, but I think the reality is, is if you're a passive investor, you're really never going to know your deal. You can't really do due diligence like the operator can. I know everybody thinks they can, but you just can't. I mean, it's, you know, we can share everything that we find or whatever, but like, you're not on every single due diligence call. You're not in all the meetings. You're not going to the property. You're not going through all the inspection reports like that. You can't really make a good decision. Um, unless you just like a particular market, I mean, okay, then that's a preference, but that doesn't mean the deal is going to do well. Um, so I, when we went to the fund model, we got a lot of resistance from our network, admittedly, just kind of like, we kind of like what, you know, the stories you would tell every time you'd buy a property. So the capital raising was a little bit slower to be honest, um, in the fund. But, you know, we still got it done. And I love the fund because, you know, when you go to borrow from a bank, they're going to look at your fund, right? And they're not going to look at, you know, just the one property. And it's so much easier to finance. You get better terms. Yeah. You know, reporting is simplified. The investors get really great diversification. I think there is just no reason. I really do love that. I do really have a preference to the funds. But at the end of the day, if we got to buy property and raise funds and, and, and the single assets indication does it, you know, that's where we kind of have to go. So, so we've kind of done a mix of both. And, and I would say that the single assets indication is what our current network really prefers. We tried the funds for a couple of years and, and, and we were sort of sunsetting our, our efforts to really push those out.

SPEAKER_00: Gotcha. Hey guys. So if you want to learn more about investment funds, uh, how they work, how they're structured, if you want to become a fund manager, how I became a fund manager, visit our YouTube channel for more free value.

Lincoln: The link is in the show notes. Thank you. So you've been in this business, let's see, eight or nine years now. Um, what's been the, what's been the hardest thing about it? You know, kind of scaling an asset management firm. And I mean, what's, what's the toughest piece?

Ryan: I love this question. Uh, You know, there, there's, there's two ways you can do this. I feel like that what we've done, you can start buying assets and have a property management that's third party right from the start. You can, you can say, Hey, you know, extra space, cube smart, public storage, you know, take it. And you know, you'll be a small fish in the beginning and cause you've only got one or two properties and maybe they won't even take your property cause they don't like the market it's in, or it doesn't produce enough revenue for them to justify the expense. Um, we decided to go in house. And we did that for a lot of reasons. If there's anybody who's listening to this, they know if they've scaled their own property management company, it's really hard. It's really hard. It's like the hardest thing I've probably done. You know, it's tough because in the beginning you don't have the reoccurring revenue and you've got to pretty much put everything you make back into the business, which is what we did. I would say that I'm happy that we have it now, now that we have some scale, but I would say that that was extremely difficult. Capital raising has never really been a challenge. I'm pretty good at it. We have a pretty good system of doing it. We've got a good stable of investors. Communications becomes, it's natural to me to communicate. I hear about all these syndication companies that don't communicate very well. that's just sort of like second nature to me like of course I'd want to tell them you know this and not tell them they don't care about that they just want to hear about this right they want to hear you know the bottom line they don't want to be in every single you know you replaced a screw on the door I mean no one no one cares right but they want to hear big picture stuff and so I think that came out really naturally but scaling property management, you know, we did it as a risk mitigation strategy. Now we're all integrated. We have our brand that we can roll out. Now we have the reoccurring revenue to justify the high quality people, right? The REIT level people. So if I could go back in time and tell myself one thing, I don't regret anything I've done, but I would say, you know, if you're going to do this property management thing, Go find the highest person you can find and pay them what it takes to get this out of the ground and really find somebody who has management experience over a hundred stores, you know, and get that person right up front. And that person's going to probably need some equity in your business. And that person's probably going to need a handsome salary because reality is they're going to look at you and like, well, who are you? You've got like nothing. Right. So it's hard. It's hard. Right. Or just know that you're going to be swapping tires a lot, right? You're going to be turning over and top grading your team as you get bigger and you can afford better people really at the end of the day. I mean, I hate to say it that way, but that's really what it is. you know, what got you here won't get you there. And so you really need to be focused on the right people and, and know when you've sort of run out of runway with that person. And, you know, and so when we, when we hired our president of our storage brand this year, you know, we had a criteria for, they had to have experience managing a hundred stores, which makes that position really difficult to fill because a lot of those people are already sitting nicely where they want to sit. Right. We also wanted that person to have a publicly traded read experience, more experience than we do. And I think that's, as entrepreneurs, sometimes we, we try to find other people like us, but they don't have the background in the thing that we're doing. Right. I mean, we have the background in storage now because we've been doing it, but not, not from us, not from the standpoint of working at extra space for 10 years in their asset management division, you know, where you can see some true best practices. and then find out how they can be applicable to your portfolio. And so I would say that's probably my biggest life lesson over the last decade is just, you know, how to scale with the right people when you really don't have any money. I mean, that's, let's be honest. I didn't really have any, we don't have any owners in SIG. You know, this is all, there's no debt on SIG on Spartan. It's, it's a, it's our own self-funded, uh, thing and, and we own it, you know, a hundred percent. So, um, you know, I, I wasn't familiar with the VC world or even what this would look like. Right. So yeah, we sort of bootstrapped it. Um, but looking back, you know, it's, it's a tough work on the road. Do you do inside or do you go outside? And I, and I know a lot of other operators that did the, the third party management got to scale and now kind of regret not being able to do it themselves in house and then contemplate how difficult it would be to take back all those, those properties and rebrand them and, and, and, you know, sort of go through this, this pain. I don't know if he'd be any less painful.

Lincoln: What you're saying, you wouldn't have done it any different, right?

Ryan: You're kind of glad that you put in the work, right? Sometimes I get the gray hairs to thank for, but yeah. But yeah, I mean, I probably wouldn't have done it any different. Of course, every day there's a little thing that you can take away, but you know, but there's some benefits and there's definitely some downsides. So yeah. Yeah.

Lincoln: Excellent. Well, let me talk about, so you said you started with one partner. Do you have, what is your highest level, general partnership, partnership structure look like? Have you brought on more partners since then? Or is it just the two of you guys?

Ryan: Yeah, it's been Scott and I, we had a third partner who retired. So we do, we did have somebody who came in for a little while and decided, you know, they wanted to, to sunset. But for the most part, it's been me and Scott. Awesome. We really haven't had any, any partners. Now we do share, you know, I think a huge benefit to align our employees as we do share part of our carried interest with our, all of our employees. from the, you know, from the office manager, all the way up to the president of a, of a storage company, we, we share the carried interest. Um, so we do that, you know, that's on a, you know, annual, uh, employment agreement, but, you know, like a rev share type thing. Yeah, exactly. So everybody's really aligned, you know, they want to see these properties be purchased and they want to see them be profitable and then sell at a great price. So everybody's really aligned and it also keeps a, you know, longevity in our, in our workforce. So, yeah. Yeah.

Lincoln: Well, let me ask you this question. The name of this podcast is Funds That Won. So we identify those in the asset management space that are winning. So what would you say makes a fund win and what are characteristics of a winning fund per se?

Ryan: Yeah, I would say I would probably boil it down to five things. One, the fund has to stay well capitalized so it can function, right? Rule number one, don't run out of cash. Um, so the fund has to have adequate reserves. It has to have adequate cash. It has to have some money in it to, for the unexpected. That being said, I think the second thing is, you know, efficiently placed money is huge. So, you know, if you, you know, it's a balancing act of having the reserves that you want to have and also having your cash efficiently placed into stuff that's, you know, producing returns. Um, three, I think asset quality and diversification, it kind of plays into that. So, you know, when I think about the three things that make a great deal, they've got to be in great markets. They've got to be well located, and then the asset quality has to be commensurate to the location that it's in. I mean, it can be a lower quality asset in a lower quality market, but really, It's got the individual assets have to make sense. And then I think there just has to be a general macro level market for that asset type. So where's the puck going for that industry? Where is self-storage headed? Is it something that money's flowing into or flowing out of? I think that makes a fund well-positioned. And then lastly, I think really at the end of the day, it's about producing returns. And I know cash flow is very important. I'm not so worried about cash flow. I like funds where the fund manager can do their job. So if there is a opportunity that comes up that may stop cash flow or reduce it temporarily, I like, I like a fund manager that has the discretion to make what's good and the best interest of the fund and the overall alpha right on the fund versus, you know, being constrained by, you know, a monthly distribution or something like that. So I think those are the five things that I really would look for, you know, in a successful fund. I'd want, you know, the, the, the manager to sort of have good discretion, you know, based on their track record, obviously you wouldn't have invested with them if they didn't have a good track record. So but that's how I'd quantify it.

Lincoln: Excellent. Love it. We haven't really touched base too much on your market. You mentioned earlier why you chose self-storage, but I'd love for you to go a little deeper on why you elected self-storage and why you're staying with it. And if you maybe even potentially have plans to start getting into other asset classes.

Ryan: Yeah, great question. So number one, the markets that we play in are secondary and tertiary because we wanted to stay away from the publicly traded REITs that are better capitalized that would, you know, eat our lunch. So we really focused on the secondary and tertiary markets for self-storage. And we look for those mom and pop owned properties that we can better manage and have more efficient professional revenue management strategies to plan. I mentioned why we got into self-storage earlier. Just the nature of the asset class has a really good tendency to cash flow, has a great resilience to recession. But really, I think what's commonly overlooked is ECRIs, which are existing customer rent increases. And right now, today, end of January, ECRIs is what's making self-storage more profitable every day. despite declining moving rates and despite a declining utilization in self-storage currently in the market environment that we're in where people aren't moving as much. And so you see this, this resilience to recessionary times or times where just, there's not a lot of transactional value or other asset classes, you know, might be not doing as well or high interest rate environment has impacted the overall market. You know, we see not as many people moving right now. but our existing customer base, we can adjust their rents every 30 days. And that's an incredible leverage tool. And if they don't pay, we can lean their belongings and then get our unit back. And I think that's a, that's a very rare thing in this, you know, in, in real estate to, to be able to have that kind of control of your pricing and of the, um, of the leverage that you have over your customer, you know, your tenant, you know, you can, you can get that, that replacement costs, you know, back. Um, And then as far as other asset classes, you know, we're really committed to self-storage. We have a plan to continue building and buying self-storage and building the brand, but we also have in our roadmap to do a private equity play, maybe buy a company or buy businesses that are complementary to our businesses. So, you know, our construction company may benefit from a concrete company or a door company or sheet metal. So we're looking at that right now. Uh, we also are not, um, not opposed to looking at other asset class types, um, at some point in the future, but, you know, really we're focused on storage for the, for the, for the next 12 months.

Lincoln: So when you say $3 billion in three years, the, it sounds like the majority of that is primarily going to come from self-storage, right? Correct. Fantastic. Well, look, a couple of, uh, quick fire questions here before we wrap up. Do you have any habits that you feel like have contributed to your success?

Ryan: I would say there's a really great checklist called the Rockefeller Habits Checklist. And I would say that we strive to do everything on that checklist. And I'll give you some key things that we do as a company. Daily stand-ups with your team. You know, 15 minutes daily check-ins. Every day, every department in our business does that. where you get on a call, it's only 15 minutes, and it's your it's your team, right? And it's what's the number one thing that you're going to do today to move the ball? Right? What's the number one thing? What is your one thing today that you got to do that's going to make you and what you can impact in your in your role go the furthest? And then everybody's everybody shares what's one thing they're struggling with? So, you know, hey, I'm really struggling to get this guy on the phone, or I'm really struggling to get this question answered or whatever it might be so that we can sort of like dial that in, you know, right, right to the start today. So I would say that's that's the Rockefeller habits checklist from the book scaling up has really been beneficial to that. I'd say the next thing is knowing the score. That's our annual theme. So I have a big flat screen TV in my office and my department capital raising. We have one number that we focus on one number, right? And having a screen or a KPI in your face and everybody knowing what that score is, has been hugely impactful to aligning people around one number. So every department has one number that they focus on. And then our company has one number that we're focused on as a rolled up strategy to that one number. So when you think about, I would like to give the analogy, it's like you go to a park and you see two basketball courts. And you see some guys or gals clowning around playing, you know, kind of playing basketball. No one's really keeping score Right, you can kind of tell right you kind of tell that just just there's not that much enthusiasm You look at the other court and they're five on five full court and there's referees in a score Everyone's working pretty hard right because they're trying to win. They're trying to win. They're trying to they're trying to score And and win the game, right? So I think knowing the score is huge in your organization. And so anytime you can have that in people's face and know the score, I think it's been hugely beneficial. And Rockefeller Habits is big on that in many different ways. You know, annual themes, quarterly goals, having KPIs really to drive results in its heart. Sometimes you ask yourself, hey, what's your one number for your department? It's like, for a legal department, like, like, what do you, what do you do for that? You know? So it's, it's, it makes people really think about what is the most important thing that I'm supposed to be going for. Cause there's a lot of noise, you know, we call it. Oh yeah. It's like every day I say, Oh, I can do this. I can do this. But it's like, what's the most important thing and how am I going to get to that number? Right. Um, so I think that's been hugely impactful to our business.

Lincoln: Love it. You know, it's funny. Our company has been doing those 15 minute standups for, I don't know, a few years now. And I didn't even know that they, what they were called, but it's, it derives from what was the book again?

Ryan: The book is called scaling up, scaling up inside that there's the Rockefeller habits checklist. And I encourage everybody to take a look at that checklist. It's really, if you read it, it's just like, wow, I'm not doing that. That's a good idea. You know, like everybody's assigned to one line item in the P and L for the company. I mean, Like you're, you're accountable to that line item. So, you know, how, how much did you be spending? How much did you not be spending? You know, are you above, are you below, you know, assigning that accountability. And there's another book we just read that's called great game of business. And that's, that's something that we're really focused on this year is, um, you know, everybody likes to talk about all these fancy things, but really your scorecard is the PNL, you know, how can you gamify, you know, improving the PNL. And if, and if people aren't financially aligned to the PNL, I mean, what are you really doing? I mean, you can do all these fancy corporate things and, you know, but like at the end of the day, that's the P and L is what matters. And so that's the, that's the scorecard. Um, so we're really focused on that this year.

Lincoln: Excellent. Last question here. Uh, any kind of on the flip of habits, but anything that like pet peeves, either personal business, investing related things that just drive you crazy?

Ryan: Um, you know, I, I, You know, I try to stay off social media as much as I can, but you know, there's just so much passive income and look at me and I've quit my job and now I'm just this is so great and just a lot of misleading. things out there about what it takes to run a company. This is really hard. It takes a lot of work. And so when you think about, you know, you see these, you know, influencers that are doing these things and they make it seem so easy. Don't, don't be fooled. It's really hard. You know, it took us, it took us two years to buy our first property and it took us a lot longer to make a profit. So, you know, I know a lot of fund managers that, you know, will confide in me and tell me like, Hey, I've been doing this for four years and I haven't made any money. And, and it's like, I think, I think just being honest with yourself a little bit. And I know we're trying to all position ourselves as, you know, successful people. So people can think that we're successful people. But, you know, there's a lot of, there's a lot of hard work that goes into this stuff. And, you know, and it's, it takes a really long time for a payoff. So if you're thinking about getting into it, or you're already into it, you know, and you're, Maybe this is helpful to hear, but you know, it's, it's a, it's a hard, it's a tough business and you know, it's a pet peeve of mine when people try to make it sound like you can have a four hour work week. It's just, it's just not true. You know, four hour work week.

Lincoln: I was like. No Tim Ferriss here, huh?

Ryan: No. And I, and I love what, I love his, I love his concept, but it's like. you know, you're not going to get your week down to four hours. I mean, maybe you do, and you've got some niche thing that, you know, good for you. You figured it out. Congratulations. I'm jealous. But like, you know, for, for the stuff we're doing, buying and operating, you know, real estate, running construction companies, running a, you know, near billion dollar AUM, it's, it's pretty hard to get it down to four hours, maybe someday. Um, but, but, you know, and you should always be thinking about firing yourself and, you know, delegating and all that. I get, I get all that stuff, you know, but the journey there is it's, it's a pretty challenging route, but it's worth it. It's, it's a lot of fun.

Lincoln: Yeah. Well, Ryan, where can people find you? Where can they get in touch with you?

Ryan: Uh, yeah, you can always email me Ryan, R-Y-A-N at spartan-investors.com. Um, that's our website, spartan-investors.com. Um, and, uh, I can always reach out to me on LinkedIn or whatever.

Lincoln: Excellent. Well, thank you so much for coming on and being generous with your time today. It was a wonderful conversation. Yeah. Thanks Lincoln. All information shared are the sole thoughts and opinions of the author. Do not take any information as legal or financial advice. You should seek a certified accountant and a professional legal team before taking any further action. We are not selling or soliciting a security in any way, shape or form.

SPEAKER_00: This content is for educational purposes only and is not to be construed as financial or legal advice.

Lincoln: Clients of FundLaunch or Black Card Capital Partners may maintain positions and securities discussed on this podcast.