Inside Self-Storage Magazine 10/98: ONE on ONE With Ron Raboud
October 1, 1998
ONE on ONE
An Interview With Ron Raboud President, Rabco Corp. Ocoee, Fla.
Ron Raboud is president of Rabco Corp., a full-service contracting companyspecializing in self-storage. Based in Ocoee, Fla., the company focuses on all aspects ofself-storage construction, including design, engineering, fabrication and erection ofcustom and pre-engineered single- and multi-story facilities. After founding the companyin 1987, Mr. Raboud has watched the public's acceptance of self-storage grow, theacceptance of steel buildings increase and the standard form of self-storage buildingchange. Since its inception, the company has been actively involved in developingfacilities in all areas of the country.
We recently caught up with Mr. Raboud to inquire about his past businessexperiences and his future speculations on the industry...
What motivated you to start Rabco?
I had been working for a manufacturing company that catered to the agriculturalindustry. The agricultural industry, just by its nature, is very cyclical. We were lookingto expand into a market that was more consistent. At that time--the early'80s--self-storage was beginning to become prevalent, so, after doing some research, wedecided to shift our focus from the agricultural industry to self-storage.
Did you serve other industries?
We serviced pre-existing clients that were in the agricultural market, but we havesince concentrated 100 percent on the self-storage industry.
What was the industry like when you founded Rabco?
Since the early '80s, the industry has gone through a rapid evolution. When we firststarted, the projects were much more basic than they are right now.
How so?
In the early days, self-storage was perceived as an industrial product. So, the zoningdepartments required the facilities to be built in industrial areas. Therefore, because ofthe location, developers didn't need to put the flash into them that there is in themarket today. They were just bland and basic, nowhere near the sophistication that thereis today.
They were all exclusively single story. Multistory was not even heard of in those days.At present, we manufacture a pre-engineered, all-steel system, but we have different typesof systems that are compatible with basically any type of construction--from masonry totilt-wall concrete to just about anything.
I think what we have seen in the last 10 years is the product evolve from an industrialto an almost retail/residential product. Throughout these past 10 years, the developers aswell as all the associated suppliers--such as security suppliers, door suppliers,etc.--have become educators, because we are having to educate the financial institutions,the local zoning and building boards and officials, as well as the surrounding residents.
How would you describe the nature of your relationship with your clients today?
We are not strictly a building dealer. Most of our clients are the result ofcultivating long-term relationships. Probably 80 percent to 85 percent of our businesseach year are repeats. We've had long-term relationships with these people, so they relyon us a lot for everything from site design to helping in creating presentations forfinancing packages. We don't get involved in the total financing aspect, but a lot oftimes clients will want us to help put their package together for the lender--in order togive the builder's perspective. That's also the point at which we get involved in a lot ofrezoning cases.
Normally, clients will come to us with a raw site or several raw sites and we will lookat which site lends itself best to economical construction. What is the most economicallyfeasible product to develop? We try not to get into feasibility studies themselves,meaning the absorption and demographic-type statistics, but as far as analyzing the sitefrom a construction perspective, that's where we are very strong.
Is your client relationship a result of the industry's evolution from an industrialproduct to a service-oriented one?
That's really what self-storage is today--a service product. We are supplying aservice, and the predominant user is the resident. So, for convenience sake, if thesefacilities are having the convenience of the consumer, they are needing to be locatedcloser to residential areas, which means they have to be more aesthetically pleasing.
With multistory facilities, developers are getting closer to residential/commercialproperty, which means land costs are going higher. Then, when land costs go higher, thejustification for the developer is he has to build up instead of out--which will take upmore land space. The developer has to venture into multistory. So, all the sophisticationis really a result of a maturation of the product itself.
How has zoning changed over the years?
There is typically a longer time period involved in the permitting process. It's nolonger a situation of selecting a site, walking into a building department and walking outwith a permit. There are usually zoning changes required, and it can lead into a number ofcommunity (public-hearing) meetings. You are basically having to sell this facility to theend-user to get the public's support prior to being granted a building permit.
Are strict zoning ordinances marking the disappearance of orange doors as asymbol for our industry?
When we get into a strict zoning situation, we are typically trying to makeself-storage facilities be as aesthetically pleasing as possible, which means that today'sfacilities look a lot different from the self-storage facilities of 10 or 20 years ago.It's a Catch-22 situation, because from an owner/developer standpoint, the bestadvertisement that an owner has for a self-storage facility is the visibility of doors.But in a lot of cases, that is the most sensitive issue that the public tries to fight.They don't want to see the doors. They want to drive by something that is aestheticallypleasing. So, the facilities need to somehow convey to the public that there is storagespace available without looking like a typical self-storage building.
How would you assess the public's current acceptance and need for self-storage?
The public needs self-storage because the residential unit is for the most part,becoming smaller, but people are just as material as ever. You are getting more and moresophisticated residential developments that have intense deed restrictions. So all theseare positive aspects for the development of self-storage. It's forcing the need foradditional self-storage space. But in complying with that, you need to have something thatis a pleasing product.
At Rabco, what type of building is your best-seller?
Because of the sophistication of the product, in more than 90 percent of the projectsthat we do, there is some incorporation of non-steel materials. So, there is a situationwhere you have to have the front or the exposed face of a project, which is basically yourpublic appeal, that has a lot of brick or block or architectural design, expensivematerials. What we try to do is incorporate in our design the use of expensive materialsin limited quantities, so you can give the illusion that it is a very expensive facility,but have the economy of steel once you get inside the site.
Have developers changed the way they look at metal construction?
Yes, most definitely. In a lot of cases, the metal buildings aren't even apparent tothe untrained eye. There are a lot of different techniques in steel construction nowadaysthat we didn't have years ago. Today, you can have a steel building that doesn't appear tobe a steel building.
In our case, our steel panels are coated with a textured-type product that makes itlook like stucco. So, unless you put a magnet on our building, you probably couldn't tellthat it is steel. In other words, we have various techniques that allow us to hide thefact that the building is made of steel.
Ten years ago, there were "standard buildings." Today, though, I don't thinkthere is such a thing called standard. This is probably just a function of today's economyand the consumer. If you think about it, no matter what we all store, you want a clean,aesthetically pleasing facility, because you want to know that your goods are in somethingthat is clean and secure.
What are some of the techniques used to dress up a steel building?
What you have a lot of times is a concrete exterior in a panel and a steel interior.Usually in multistory, it would have a concrete perimeter on the first floor, steelinterior and total steel for the second, third and fourth floors.
The secret to success is being flexible, because we never know what we are going to runinto zoning-requirement wise. So, to say we have a definite system would be handcuffingourselves, handcuffing the customer. We have to have a system that is user-friendly andcan accommodate any need.
What have been the key aspects of Rabco's success?
One has to first define the kind of market that they are in, the clients that theyhave. The kinds of clients we have are individuals or companies who are building B+ or Afacilities. They are going after the stricter sites, the more stringent sites. And thoserequire extreme flexibility. There is still a secondary market or a rural-type market thatcan get away with the basic steel building that was built 10 years ago. But that's not ourtypical client. The key is flexibility.
How has the recent growth of self-storage REITs changed the industry?
I think you have an industry that is going through a very rapid evolution. What theREITs are doing is a very positive aspect of it; REITs are developing very prime, A-typefacilities at a very rapid rate. They are also very sophisticated on the management side,and they are acquiring a lot of facilities that may or may not have been managed well.
There is also a great benefit to the end-user. Because of the size of the REITs and thefinancial capabilities of the REITs, they have assumed the role of educators to theconsuming public. By the sheer strength of their dollars, they can reach more people at aquicker rate than independent operators could before.
Wouldn't you agree that they are bidding up the prices of facilities to anunrealistic level?
I don't know if that is a good way to look at it, because that is unrealistic. As longas the rental rates of the units are within public tolerance and the REITs can afford andjustify those purchase prices, how is it negative? If you look at the individual whosefacility they are acquiring, he is not complaining. So, I believe that if the REITs canjustify it for themselves, within their pro-forma and perspectives, I think it is helpingthe non-REIT-type owner amass value and additional equity in his projects. So, as long asthe market can bear the cost, I don't think high prices are necessarily a negative.
Are you at all concerned about REITs competing the mom-and-pops out ofbusiness?
Yes, that is a concern. But I think, by product definition, there is always going to beroom for the mom-and-pops in the secondary market. The REITs are targeting properties thatwill lease up and maintain their occupancy in a relatively short window. They are notgoing to have the tolerance for an 18-month lease-up period. The mom-and-pops are going tohave to redefine the market they are going into.
REITs are forcing the mom-and-pops to be more sophisticated or they aren't going tosucceed. In my opinion, I don't feel the REITs are the real concern in today's economywith the market condition. What concerns me is the relatively easy availability of moneyright now.
Do you see a problem with an excess of funds in the market right now?
I see a potential problem with that. If we think about what happened in the early '80s,when the lenders were lending off the income streams of this project, there werefacilities that were built that should never have been built, from a competitivestandpoint--putting a new facility next to an existing facility in a market that couldn'tsupport both. When money is freely available, the due-diligence period is not properlydone. When money is readily available, banks are lending money freely, investors arelending money freely, nobody is doing their homework.
But not the REITs, because the REITs are smart, sophisticated consumers. They are doingtheir homework. They are either building in markets that have a pent-up demand, oracquiring facilities that are already at occupancy.
If not the REITs, who then is responsible for overbuilding?
The guys that concern me are the mom-and-pops that have access to money, but they arenot seasoned residential self-storage developers, and they haven't done their homeworkwith respect to demographic analysis or absorption rates or due diligence in a specificmarket.
The tougher the availability of cash becomes, the more homework it takes to get thatcash. So, it forces you to do your homework. When cash is readily available and you canbuy it off of your personal strength, not necessarily the strength of the project, that'swhat concerns me.
I am not in fear of the REITs, because they are skilled individuals. I believe thatthey are competing in a different market than the mom-and-pops. They are going after thoseprime sites and they are building A facilities for which they have done their homework.They have an obligation to develop prime properties in prime areas and justify returns.It's the other guys who concern me. The REITs are no different than the successfulindependent operator. They are all susceptible to competition to someone with cash whohasn't done their homework.
Are you concerned about certain markets being overbuilt?
I'd hate to say that. I think there are markets that are approaching saturation. Butevery market is different, and I believe that even in saturated markets if the correctmarket is selected, if you take a site through the zoning process, you can be successfulin isolated cases--even in saturated markets.
We could almost select any state and find examples of markets that are saturated. Butagain, in my opinion, the one that I fear most about saturation is the inexperienceddeveloper.
What makes the difference between success and failure in a saturated market?
The method they use to get land. The inexperienced person is looking for land that isproperly zoned, properly configured and within his budget. The REITs and the sophisticateddeveloper will have a broader portfolio. They may do an assemblage of properties. They maygo through a re-zoning process that takes three or four years. They have--by the sheerfinancial size--the staying power to see selected properties through a longer process andthrough a difficult time.
Are you talking about the REITs' ability to see a project through the rent-upprocess without financial difficulty?
Not even the rent-up period. It's the two- or three-year period it takes to get apermit. And, in a lot of cases, we are working on projects that have two or threebirthdays from the time we first know about the project until the time you are actuallyable to break ground. It takes a lot of patience, but it also takes a lot of money. Theindividual who is developing a lot of projects doesn't have the staying power to seesomething through like that. And that's where you can be successful in a saturated market.
Orlando, which is our home, has definite areas that I wouldn't even consider buildingfacilities because of saturation. But if you get into any of those pockets, you could finda site where, if you can get it properly zoned and get it through a lengthy process, youcould be successful.
It is the rule rather than the exception that it takes a minimum of a year from thetime you take a project and you put a site under contract to the time you are able tobuild on it.
I think our industry has turned into one of long-term relationships, and that's vendorto vendor, vendor to owners. I think it's a situation where the REITs are comfortable withcertain companies supplying their product. It's becoming a team effect, rather than abidding war.
I don't think we are any different than any of the other suppliers. We have our keyaccounts that we take care of and they take care of us. If anything, the quality of ourcustomers and the quality of my employees are two of our key factors to success. I havevery loyal customers and very loyal employees.
What are some of the personal philosophies that keep you going in business?
Because of the sophistication of the industry and the evolution and the types of sitesthat our customers are selecting, every project is unique to us. We are able to dosomething different every day. I think the industry is cyclical and it is going to change;it's going to have its ups and downs. The flexibility that we need to maintain keeps itinteresting. We are not dooms-dayers by any means. We are committed to the industry. Iknow that we are going to be successful both when the economy is good and bad by the waywe are structured. I have a very positive outlook for the industry.
What is your typical day like?
I am like a fireman, putting out fires every day, fighting zoning battles,manufacturing battles, labor battles, you name it. I think the one thing that is mostcritical in the construction industry right now--in all phases of construction--is theinavailability of good quality labor. The labor pool is stretched too far. Anybody thathas a desire to work is working. So, we have a situation where all phases of constructionare booming right now and the labor pool is very limited.
Do you see an end to that limited labor pool?
I hope I do. I'd like to see other phases of construction fall off a little bit otherthan self-storage--like road construction. I believe that the two things that areaffecting our industry the most are road construction and auto sales. Road constructionaffects the price of concrete and paving, which are two prominent components ofself-storage. And auto sales affect the price and stability of the steel market. If autosales are up, typical steel mills will increase the price of the raw steel that we use tomake our components. If auto sales dip, then we are able to be a stronger player to themills and get to enjoy price concessions, rather than increases.
What about residential housing construction?
The more we see of that, the more need there is for self-storage. The Utopia for uswould be if no one sold cars and paved roads, but sold a lot of houses.
Where do you see the industry in 10 to 20 years?
I still look for the industry to be strong, but I look for the players to be fewer. Ilook for there to be fewer developers, but also fewer suppliers. I think we are going togo through a weeding-out process. I think right now we are going through very good times.And in good times, snakes raise their ugly heads. I think there are developers thatshouldn't be developing facilities right now in the market because of unscrupulous ways,and I believe there are suppliers who don't need to be supplying product any more.
What kind of unscrupulous ways?
There are individuals who, because of the availability of money, are buildingfacilities that shouldn't be built for the sole purpose of over-financing them and puttingmoney in their pockets. They make sure that however they are leveraged, that it isproperly structured, so that they don't personally fail. They are the ones that are goingto damage the good, successful developers. We will see some failed facilities here in thenot-too-distant future. It may not be due to a market condition; it may be due to aleverage condition or an owner/developer condition.
Ten years from now, there is going to be a most definite need for self-storage andthere are still going to be a lot of people being successful at it, but it will be fewer.That's where it's going to come back to relationships. Those people having successfulrelationships with successful suppliers will be successful. Those who have tended to takeadvantage of people will not be here. And we plan on being here.
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