In this conversation, AJ Osborne shares his extensive experience in the self-storage industry, emphasizing the importance of trust and transparency in investor relations. He discusses how personal experiences, particularly a life-altering health crisis, have shaped his approach to communication and risk management. AJ highlights the need for clear, concise communication with investors, especially during market fluctuations, and stresses the importance of aligning investor expectations with business goals.

When Things Go Wrong: How to Communicate with LPs with AJ Osborne

Joe Guidi (00:00.622)

All right, AJ, thanks so much for joining me.

AJ Osborne (00:03.629)

Thanks for having me on, appreciate it.

Joe Guidi (00:05.102)

Yeah, I've been looking forward to this. I know many of the people listening, the people who use our site, probably know who you are. But for those who don't know, can you tell us a little bit about yourself? Just give us an intro to you, self-storage, and Cedar Creek.

AJ Osborne (00:24.431)

Yeah, so I'm a self-storage guy. That's all I do; I'm a total self-storage nerd. I have been in this industry for 20-plus years now. We were in it in the early 2000s, so we started prior to 2008. I love it. We've built the business around a simple approach: this is a business, this is not a real estate asset.

With that approach, we would buy underperforming assets and turn them around with a focus on operations and technology. That worked really, really well, and that's how I became known, especially in the industry. I started speaking and I wrote the industry's bestselling book, which was about turning real estate into a thriving business. It was all around changing the way you went about storage. That took hold and really became a new format, which everyone adopts today. In fact, if you don't really adopt that, you can't compete.

We're actually at a new level within the industry. Prior to 2008, the industry was ignored—that is an understatement. Less than 10% of the industry was REITs or institutionalized. It was purely mom-and-pop; banks didn't like it. It really came out of the shadows after 2008, got popular after 2016, and became what it is today in a very short period of time.

It's fascinating for me having watched this industry change. We do everything storage. We're a vertically integrated shop. We pour millions into the business of storage, not just buying the assets. We own our tech stack and multiple tech companies. We build our own revenue management operating system utilizing mass data. We have architects in-house, we have construction management in-house, and we do property management. We wanted it to be centrally integrated just like the REITs, which really changed the game when particularly Extra Space started leading that way. We're

AJ Osborne (02:47.263)

nerds about it and love it.

Joe Guidi (02:49.09)

That's awesome. I want to dig in a little bit more to the education side when we get further down, because I'm curious about how you balance the education and the real estate side of the business. But you talk a lot about building businesses and portfolios that last. Again, this podcast is mainly about trust, transparency, and how GPs are communicating with their LPs. Where does trust with investors begin for you?

AJ Osborne (03:16.495)

That's an amazing question. When looking at LPs, trust begins before you ever meet them. Trust is about who you are more than anything, and that's long before an LP ever shows up.

For us, we focused very heavily on the fact that we are not a fly-by-night company. We've been doing this since 2004. We're not new to this, and we're not going away. We have consistency and a steady track record. For us, we risk our money. Before I ever took an investor's money, it was all our own capital. We built every single one of our companies off our own money. Our whole portfolio, originally $150 million in assets, came from just us—just me and my two partners. We took no investors.

We did not take investors until we had already put all our money at risk and learned from our own actions. Investors became an opportunity to come what I call "ride along." They are riding along. We don't use them as a vehicle to necessarily make us, because we already had it; they are allowed to come ride along on the side with us as partners. Our entire net worth that we have created over two decades is tied into this. It's our risk, our money, our businesses; I pay the expenses. That's a really important piece for us. It starts with us and it ends with us.

When you look at trust with the LP, you can make mistakes and you will make mistakes—holy cow, have I made so many. But the one thing that stands behind short-term market changes or mistakes is your history: how you got there and where you will be. That's the most important thing to me. It's transparency throughout the entire journey of who we are, what we stand for, and where we're going.

AJ Osborne (05:39.735)

We can't, don't, and will never promise returns. We'll never promise that we won't make mistakes, but we do promise that we will be the first. It'll be our money at risk, and we are promising the opportunity to participate in what changed my life and saved me and my family. The reasons why GPs take money is really important. How they take money is really important. Their history—all of those things build trust. It's not just about how you're presenting; it's much deeper.

Joe Guidi (06:32.46)

Yeah, I was going to follow that up with what's important to establish early in the relationship, but I think you answered it. If I was to sum it up, you're saying "skin in the game." We have skin in the game; it's our money at risk. The investors aren't a vehicle for you; you're the vehicle for them.

AJ Osborne (06:54.342)

Bingo. That's exactly right. That is our relationship. That was a hard decision for us to make because we didn't need to take investors. We had a $150 million portfolio on our own—our whole business, our employees, our tech companies. It literally only came about because I became paralyzed from head to toe.

When I was in the hospital, I was on life support for months. When I was coming out, I simply made a promise that I would teach and share opportunities with others because previously I’d never done a podcast or anything online. The reason why we didn't allow investors before was because we were scared of losing other people's money. I was terrified of that. I'm okay losing my money, but not other people's. Second, to be honest, it was for selfish reasons. The change in why we take investors' money is very specific: it's not to make a quick buck; it was actually inverted.

Joe Guidi (08:21.678)

That's interesting how you came to that. I want to ask some questions about how that experience changed the way you communicate with people. But first, you mentioned mistakes. I think mistakes are interesting. A lot of operators are in the place right now where they're adjusting projections, extending hold periods, and dealing with interest rate pressure.

AJ Osborne (08:55.467)

Absolutely. Capital calls—it’s been rough for the last three years and it continues to be.

Joe Guidi (09:04.374)

Right. So obviously that's part of the risk when you go into an investment. How do you approach those conversations when things change?

AJ Osborne (09:13.999)

I've done this in so many ways that were bad. When I look at my original communication style, I communicated to them as if they were just partners. What I mean by that is I communicated asset-base, and that was wrong. I brought my operating model and treated it as a pure ride-along. That was not the appropriate way to handle it because investors are investing in an investment vehicle; they are looking to understand returns and timeframes in a very different manner than I had ever done.

I communicated purely on the asset basis: "the asset's making this much money, here's the change we're making, this is what the asset will do." Instead, you need to communicate to the investor: "here's where your money is, here's what's happening, and here's what that will result in." I had to learn that through communication style, which was difficult because I was trying to understand something I had never done.

When we make mistakes, you'd think this is a simple thing, but it’s not. It's about what the investors need, want, and should be hearing. There's one way to do it where it’s just like: "all right, here's what's going on, here's the problem child." Then I'd dive into everything about the asset because I wanted to be transparent. That was horrible.

AJ Osborne (11:10.349)

I was assuming they had the experience and knowledge base that I did. I was getting into complexities thinking I was being good because I was being wildly transparent. I was opening up maps and showing what we're going to try to do next quarter. Don't do that. I think I confused and scared a lot of investors. I was so overly transparent that it wasn't focused. I was sharing execution-type things that, if you didn't have context, didn't mean anything.

As we rearrange expectations, it needs to be very simple, moderate, and you need to talk to investors differently. You need to be very simple and clear. "This is the problem. This is the outlook. Here's what we know and what we don't. Here's what we're going to do." Simple, concise, consolidated, and deliberate. It is about clarity in a way that is digestible.

There is this idea that you need to be totally transparent, which I completely agree with. If any investor asks us anything, we say, "here are the reports." For a long time, we were giving all the financial statements monthly. That caused a lot of confusion. If you're a new GP listening to this, you will make mistakes.

Investors understand that, and the vast majority are fine with it if you're upfront, take responsibility, and take care of it. But you need to be concise, consistent, and you need to update them as it's happening. Focus it so it's clear. How you communicate changes. It's very different if you make a mistake in an up-market where interest rates are going down versus a plateaued market where the consequences are different. It's a balancing act of being extraordinarily transparent but also concise with useful information that the investors care about.

Joe Guidi (14:23.82)

Right. I think "direct" would be the other word. You don't want someone to know every little problem that's happening at a facility because they don't have a "bucket" for that.

AJ Osborne (14:49.475)

They don't know what that means in a result.

Joe Guidi (14:51.342)

Yeah, they don't know how it impacts the results. Part of the reason they're working with you is to net that out for them. In the reviews, we see that timeliness and proactive communication give people confidence that they're dealing with a thoughtful operator.

AJ Osborne (15:17.071)

Another thing I had an issue with was thinking: "if we don't have an answer, what are we doing telling them? We need to figure out an answer and then tell investors." I don't agree with that anymore. You need to state: "here's the issue, we're working on it, and we'll follow up." Investors do want answers, but they also need to know the issue and what you're doing to work on it. It's okay to say, "I do not know, I'm trying to figure this out, and here's what we're doing to figure it out."

Joe Guidi (15:58.83)

Totally. The last thing you want is them finding out there was a problem you knew about but didn't tell them because you didn't have an answer yet.

AJ Osborne (16:05.911)

You never want that, ever. Especially in today's markets, a lot of operators feel that pressure because they don't know where things are going. That weight can be really heavy on an operator that feels responsible for their investors. Investors want to know the result or what the market will be, and often we don't know.

We don't know if interest rates are going to go up or down. A lot of operators can feel that weight and seize up. You have to be clear about what is in your control and what is outside of your control. "Here's the issue, here's what we're doing. Here's what's in our control and how we're fixing it. Here's what's not in our control and what we're doing to hedge or position ourselves better." Investors understand that there are things not within your control.

Joe Guidi (17:20.246)

Yeah, without a doubt. Most GPs are used to succeeding, so when things start going sideways, they feel it deeply. But you can't let those feelings prevent you from communicating. I want to circle back to your story. Obviously, you've been open about your health battle and recovery. Has that shaped how you show up with investors?

AJ Osborne (18:10.635)

Absolutely. First of all, the one thing that happened was humility on a level that's hard to describe. Nothing humbles you more than lying naked in a bed for months, being scrubbed with rags, unable to communicate or walk, and having literally everything done for you.

Coming out of that, it was like I had nothing else to lose. I was so overwhelmed with gratitude for the help I received. I understood that I need help—we don't live on an island. Success doesn't work like that. We need other people to be successful. It changes when you're an adult and you have to learn to talk again. You are now like a three-year-old and you need your wife and your brother to help you move from the bed to the bathroom.

That humility aspect—"I don't know what's going to happen"—led to this: I was told so many times, "we don't know if you're going to walk again." The only thing you can do is try. I was in a massive amount of pain. You don't know the end, you just have to keep going. You have to have faith and hope it will turn out.

That changed the way I communicated. I recognize my need for other people and the responsibility I have to them. Investors mean a lot to me. When I communicate to them, there's no sense of pride where I'm "better" because I'm an operator. No, I need you just like you need me. That's why we think of it as a "ride along"; investors are our partners. That was a big change for a young man who was 34 and had been very successful. I viewed it as "we did it" on our own, but that experience changed my purpose.

Joe Guidi (21:16.214)

Humility is the word that’s ringing in my ears. How did that impact your perspective on risk?

AJ Osborne (21:29.409)

It did. Previously, I didn't take investors principally because I did not want to risk their money. I didn't want to be responsible to someone or have to answer to them. After I came out of it, a good friend asked me why I wasn't taking capital. He said, "do you think these people are not as smart as you? Do you think they can't take on risk or aren't willing to?" I said, "no, not at all." He said, "then all you're doing is not giving opportunities to others."

I viewed risk as an essential part, but I recognized I can't control everything. One minute I was planting huge 40-foot trees in my backyard; hours later, my legs wouldn't work. Two days later, I was in a coma. I was healthy and extraordinarily active. I realized there are uncontrollables.

I look at risk in two ways: intrinsic and extrinsic risk. I need to manage risk because I can't control it. For example, in 2021, I spoke about the self-storage bubble. I said interest rates are going to rise and create stagnation in the housing market. Storage was at way too high multiples. We refinanced our portfolio because we wanted long-term loans that don't need refinancing soon, because I don't know what those risks will be. We got a low rate and took in cash to have a buffer.

How we moved forward was predicated on the fact that I don't know what will happen. This was driven home by 2008, too. Recessions are guaranteed. If we know that, what do we need to do to manage it and protect ourselves? I really focused on how to just make sure we are set for the long term. I'm a very long-term thinker.

Joe Guidi (25:17.378)

If you're thinking long-term, you naturally focus on those extrinsic things you can't control.

AJ Osborne (25:40.087)

Long-term gives me options. If I plan on the short-term and something happens, I can run out of options. I'm managing risk to give myself options for things I don't know. Over time, I want the decisions to be on me, not the market. Market-forced decisions are very scary. You manage risk so you're not subject to those forced decision-making times, like contracts or refinances in periods that aren't good.

Joe Guidi (26:40.402)

When you're managing assets long-term like a business, you go through cycles. How do you keep investors aligned with the long-term value strategy despite noisy headlines or short-term returns flattening out?

AJ Osborne (27:07.599)

There are a few things. First, adjust goals and targets, but stick to what you’re trying to accomplish. Not all investors will have the same viewpoint, and that can be hard. You have to be willing to have very hard conversations. I had one investor who wanted us to sell because of their own personal situation. I had to tell them: "your short-term needs are not the priority. I have 300 other investors, and I don't trump their needs for you. We have a plan and we need to stick to it."

A lot of that needs to be filtered out at the start. You need to communicate the original plan and goal clearly: "we're a long-term hold" or "this is a five-year finance." Three or four years ago, this was hard because money was so easy. We had investors that didn't even watch our videos or read the documents; they just gave us money without knowing the plan. Then they wanted something that was never part of the plan.

Investors should look after themselves and protect their money. But if you can do a right match with the right investor and the right thesis out of the gate, you take care of 90% of your problems. You are not a match for everyone. You do not want every investor's money if your strategy or style doesn't fit their needs. It's like getting married; you want to marry the right person. You don't want to get married and find out two years later they don't want kids and you want ten.

Joe Guidi (30:09.036)

Right. Passive investing isn't really passive in the beginning; you need to make sure the investment is a good match. For GPs, creating alignment upfront is really important. Your loudest investors will be the ones you failed to create alignment with just because they were willing to write a check. What do you think operators should be doing to maintain trust in this market?

AJ Osborne (30:54.607)

Based on my failures, there were a few things I wasn't transparent about because I didn't want it to look like I was bragging. When the market first turned, we had one market slammed with a 60% rate drop. We had a new facility in fill-up mode. I personally covered the expenses of the assets—property management and everything. It cost us right around $3 million out of our bank account. There was no profit at the management company, so we had to fund it so it wouldn't be a negative for investors.

I didn't talk about that at all because I didn't want to seem like I was rubbing it in. That was dumb because then they don't understand the situation or what you're doing. You don't want your LPs to have a different view of the situation than you do. You want to be aligned. Just get down to brass tacks: "here's what I did. I'm not asking for a thank you; I'm telling you so you're informed."

Consistent, clear communication is key. Don't dive into things that aren't relevant just to show off or explain something confusing. Be direct: "here’s what’s happening, here’s what we’re doing." When you don't know, tell them you don't know. "Here are the risks and this is why we're doing it." Then just move—action, action, action. Show by work, be transparent, and work even if you don't know what the outcome will be.

Joe Guidi (33:29.42)

I think that's really good. Operators taking big action to make sure LPs are made whole is important. If there's a mismatch in perception, there's room for discomfort. What part of passive investing needs to die?

AJ Osborne (34:30.511)

There are a few things. On the LP side, this idea that occurred in the greatest bull market ever—where everything went up—that direct investing is an ATM. The idea that the value of your investment is the split or the preferred return is false. That isn't the value of the investment; that was just what was put on paper. LPs need to understand you are investing in a business and an asset. The formulas of returns don't mean they will happen. It is predicated on what you're buying and how you're doing it.

On the GP side—and I may upset some people—I was shocked that there are elements that view almost Ponzi-scheme-like: that we can pay investors distributions out of funds we raised and call them returns. I didn't know that was a thing until I started. That was crazy to me. Raising more than you need to pay out distributions from money you got from the bank or investors is not a return. All you did was take money from someone interest-free and give it back to them.

I hate that because it is so confusing to investors. They get consistent distributions, then all of a sudden the GP says they're underwater and have no more money. The investor says, "you gave me a distribution last quarter that hasn't changed for two years, what are you talking about?" And the GP says, "well, none of that came from cash flow." That is confusing because the return isn't from the asset, yet we state it like it is. In so many other industries, that would be illegal.

Joe Guidi (38:11.99)

This is a good word to end on. Thank you for taking the time; our listeners really value it. If people want to learn more about you, Cedar Creek, or Self Storage Income, where should they go?

AJ Osborne (38:28.185)

You can find me anywhere online, AJ Osborne, Self Storage. You can go to Instagram or our podcast, the largest in the industry, Self Storage Income. For investing with us, check out Cedar Creek Capital and contact our team.

Joe Guidi (38:48.726)

Awesome. Thanks, AJ. Appreciate it.

AJ Osborne (38:50.467)

Thanks, man.