ONE on ONE
An Interview With Ron Raboud President, Rabco Corp. Ocoee, Fla.
Ron Raboud is president of Rabco Corp., a full-service contracting company specializing in self-storage. Based in Ocoee, Fla., the company focuses on all aspects of self-storage construction, including design, engineering, fabrication and erection of custom and pre-engineered single- and multi-story facilities. After founding the company in 1987, Mr. Raboud has watched the public's acceptance of self-storage grow, the acceptance of steel buildings increase and the standard form of self-storage building change. Since its inception, the company has been actively involved in developing facilities in all areas of the country.
We recently caught up with Mr. Raboud to inquire about his past business experiences 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 agricultural industry. The agricultural industry, just by its nature, is very cyclical. We were looking to 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, we decided 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 have since 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 first started, 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 zoning departments required the facilities to be built in industrial areas. Therefore, because of the location, developers didn't need to put the flash into them that there is in the market today. They were just bland and basic, nowhere near the sophistication that there is 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 types of systems that are compatible with basically any type of construction--from masonry to tilt-wall concrete to just about anything.
I think what we have seen in the last 10 years is the product evolve from an industrial to an almost retail/residential product. Throughout these past 10 years, the developers as well 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 of cultivating long-term relationships. Probably 80 percent to 85 percent of our business each year are repeats. We've had long-term relationships with these people, so they rely on us a lot for everything from site design to helping in creating presentations for financing packages. We don't get involved in the total financing aspect, but a lot of times clients will want us to help put their package together for the lender--in order to give the builder's perspective. That's also the point at which we get involved in a lot of rezoning cases.
Normally, clients will come to us with a raw site or several raw sites and we will look at which site lends itself best to economical construction. What is the most economically feasible 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 site from a construction perspective, that's where we are very strong.
Is your client relationship a result of the industry's evolution from an industrial product to a service-oriented one?
That's really what self-storage is today--a service product. We are supplying a service, and the predominant user is the resident. So, for convenience sake, if these facilities are having the convenience of the consumer, they are needing to be located closer to residential areas, which means they have to be more aesthetically pleasing.
With multistory facilities, developers are getting closer to residential/commercial property, which means land costs are going higher. Then, when land costs go higher, the justification for the developer is he has to build up instead of out--which will take up more land space. The developer has to venture into multistory. So, all the sophistication is 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 no longer a situation of selecting a site, walking into a building department and walking out with a permit. There are usually zoning changes required, and it can lead into a number of community (public-hearing) meetings. You are basically having to sell this facility to the end-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 a symbol for our industry?
When we get into a strict zoning situation, we are typically trying to make self-storage facilities be as aesthetically pleasing as possible, which means that today's facilities 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 best advertisement 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 aesthetically pleasing. So, the facilities need to somehow convey to the public that there is storage space 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 more sophisticated residential developments that have intense deed restrictions. So all these are positive aspects for the development of self-storage. It's forcing the need for additional self-storage space. But in complying with that, you need to have something that is 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 projects that we do, there is some incorporation of non-steel materials. So, there is a situation where you have to have the front or the exposed face of a project, which is basically your public appeal, that has a lot of brick or block or architectural design, expensive materials. What we try to do is incorporate in our design the use of expensive materials in 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 to the untrained eye. There are a lot of different techniques in steel construction nowadays that we didn't have years ago. Today, you can have a steel building that doesn't appear to be a steel building.
In our case, our steel panels are coated with a textured-type product that makes it look like stucco. So, unless you put a magnet on our building, you probably couldn't tell that it is steel. In other words, we have various techniques that allow us to hide the fact that the building is made of steel.
Ten years ago, there were "standard buildings." Today, though, I don't think there is such a thing called standard. This is probably just a function of today's economy and 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 something that 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, steel interior 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 run into zoning-requirement wise. So, to say we have a definite system would be handcuffing ourselves, handcuffing the customer. We have to have a system that is user-friendly and can 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 they have. The kinds of clients we have are individuals or companies who are building B+ or A facilities. They are going after the stricter sites, the more stringent sites. And those require extreme flexibility. There is still a secondary market or a rural-type market that can get away with the basic steel building that was built 10 years ago. But that's not our typical 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 the REITs are doing is a very positive aspect of it; REITs are developing very prime, A-type facilities 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 the financial capabilities of the REITs, they have assumed the role of educators to the consuming public. By the sheer strength of their dollars, they can reach more people at a quicker rate than independent operators could before.
Wouldn't you agree that they are bidding up the prices of facilities to an unrealistic level?
I don't know if that is a good way to look at it, because that is unrealistic. As long as the rental rates of the units are within public tolerance and the REITs can afford and justify those purchase prices, how is it negative? If you look at the individual whose facility they are acquiring, he is not complaining. So, I believe that if the REITs can justify it for themselves, within their pro-forma and perspectives, I think it is helping the non-REIT-type owner amass value and additional equity in his projects. So, as long as the 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 of business?
Yes, that is a concern. But I think, by product definition, there is always going to be room for the mom-and-pops in the secondary market. The REITs are targeting properties that will lease up and maintain their occupancy in a relatively short window. They are not going to have the tolerance for an 18-month lease-up period. The mom-and-pops are going to have to redefine the market they are going into.
REITs are forcing the mom-and-pops to be more sophisticated or they aren't going to succeed. In my opinion, I don't feel the REITs are the real concern in today's economy with the market condition. What concerns me is the relatively easy availability of money right 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 were facilities that were built that should never have been built, from a competitive standpoint--putting a new facility next to an existing facility in a market that couldn't support both. When money is freely available, the due-diligence period is not properly done. When money is readily available, banks are lending money freely, investors are lending money freely, nobody is doing their homework.
But not the REITs, because the REITs are smart, sophisticated consumers. They are doing their homework. They are either building in markets that have a pent-up demand, or acquiring 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 are not seasoned residential self-storage developers, and they haven't done their homework with respect to demographic analysis or absorption rates or due diligence in a specific market.
The tougher the availability of cash becomes, the more homework it takes to get that cash. So, it forces you to do your homework. When cash is readily available and you can buy it off of your personal strength, not necessarily the strength of the project, that's what concerns me.
I am not in fear of the REITs, because they are skilled individuals. I believe that they are competing in a different market than the mom-and-pops. They are going after those prime 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 successful independent operator. They are all susceptible to competition to someone with cash who hasn'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. But every market is different, and I believe that even in saturated markets if the correct market is selected, if you take a site through the zoning process, you can be successful in isolated cases--even in saturated markets.
We could almost select any state and find examples of markets that are saturated. But again, in my opinion, the one that I fear most about saturation is the inexperienced developer.
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 is properly zoned, properly configured and within his budget. The REITs and the sophisticated developer will have a broader portfolio. They may do an assemblage of properties. They may go through a re-zoning process that takes three or four years. They have--by the sheer financial size--the staying power to see selected properties through a longer process and through a difficult time.
Are you talking about the REITs' ability to see a project through the rent-up process without financial difficulty?
Not even the rent-up period. It's the two- or three-year period it takes to get a permit. And, in a lot of cases, we are working on projects that have two or three birthdays from the time we first know about the project until the time you are actually able to break ground. It takes a lot of patience, but it also takes a lot of money. The individual who is developing a lot of projects doesn't have the staying power to see something 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 building facilities because of saturation. But if you get into any of those pockets, you could find a site where, if you can get it properly zoned and get it through a lengthy process, you could be successful.
It is the rule rather than the exception that it takes a minimum of a year from the time you take a project and you put a site under contract to the time you are able to build on it.
I think our industry has turned into one of long-term relationships, and that's vendor to vendor, vendor to owners. I think it's a situation where the REITs are comfortable with certain companies supplying their product. It's becoming a team effect, rather than a bidding war.
I don't think we are any different than any of the other suppliers. We have our key accounts that we take care of and they take care of us. If anything, the quality of our customers and the quality of my employees are two of our key factors to success. I have very 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 sites that our customers are selecting, every project is unique to us. We are able to do something 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 it interesting. We are not dooms-dayers by any means. We are committed to the industry. I know that we are going to be successful both when the economy is good and bad by the way we 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 most critical in the construction industry right now--in all phases of construction--is the inavailability of good quality labor. The labor pool is stretched too far. Anybody that has a desire to work is working. So, we have a situation where all phases of construction are 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 other than self-storage--like road construction. I believe that the two things that are affecting our industry the most are road construction and auto sales. Road construction affects the price of concrete and paving, which are two prominent components of self-storage. And auto sales affect the price and stability of the steel market. If auto sales are up, typical steel mills will increase the price of the raw steel that we use to make our components. If auto sales dip, then we are able to be a stronger player to the mills 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 us would 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. I look for there to be fewer developers, but also fewer suppliers. I think we are going to go 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 that shouldn'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 building facilities that shouldn't be built for the sole purpose of over-financing them and putting money in their pockets. They make sure that however they are leveraged, that it is properly structured, so that they don't personally fail. They are the ones that are going to damage the good, successful developers. We will see some failed facilities here in the not-too-distant future. It may not be due to a market condition; it may be due to a leverage condition or an owner/developer condition.
Ten years from now, there is going to be a most definite need for self-storage and there 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 successful relationships with successful suppliers will be successful. Those who have tended to take advantage of people will not be here. And we plan on being here.
