The Pomp Podcast - #1158 Jake Wurzak | Investing Lessons From Billion Dollar Hotel Owner

Episode Date: February 15, 2023

Jake Wurzak is the CEO of DoveHill Capital Management, and Wurzak Hotel Group. In this conversation, we talk about the hotel industry, everything from investing to operating both boutique and roadside businesses. When you think about this hotels that you visit, there is an operator that owns both the business & real estate, and they constantly think about how they can drive a profit. Jake is an expert, and has been doing it now with multiple hotels around the country. Jake breaks down both the economics and what makes a good hotel.  ======================= Announcing LYCEUM | Miami, a day-long event on March 4th in Miami Beach hosted by Pomp. We’re gathering an explosive group of experts to engage in a series of bold discussions, covering topics from investing, emerging tech, longevity, space exploration, entertainment and more.The speaker lineup includes names such as investing legend Cathie Wood, NYT bestselling author Vivek Ramaswamy, billionaire Christian Angermayer, master of Contrarian Thinking Codie Sanchez, Modern Wisdom host Chris Williamson plus many more. Listeners will receive an exclusive 40% discount on VIP and Insider Pass tickets with code POMP40.  General Admission tickets are free of charge. Spots are limited so head to lyceummiami.com to buy your ticket today. ======================= Pomp writes a daily letter to over 200,000+ investors about business, technology, and finance. He breaks down complex topics into easy-to-understand language while sharing opinions on various aspects of each industry. You can subscribe at https://pomp.substack.com/ =======================

What's up everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. We have no advertisers on this podcast, so it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Jake Warczak is the CEO of Dove Hill Capital Management and Warczak Hotel Management.

In this conversation, we talk about the hotel industry, everything from investing to operating, both boutique and roadside businesses. When you think about these hotels that you visit and frequent all the time, whether you're traveling, you're on vacation, or it's just something down the street, there's an operator that owns that business. They own the real estate and they're trying to think about how to do it better and how they can drive a profit.

Jake is an expert, has been doing it now in multiple hotels around the country. And he breaks down not only the economics of this, but what makes a great hotel and what doesn't. Once you get done listening to this episode, jump on Twitter and let us know what you liked, what you didn't like, what you agreed with and what you didn't agree with.

The feedback is always helpful and helps us create better episodes. Here is my conversation with Jake Warzak. This episode is brought to you by Accenture. When your advertising operations fall out of sync, everything else follows. Spotify and Accenture are working together to reinvent the rhythm of ad sales, using automation, analytics, and smarter workflows to simplify campaign delivery and access better data across the business.

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Explore OnStar tech today at OnStar.ca and discover how to take your summer to the next level. OnStar. Better never stops. If you pull a muscle, all of a sudden you realize how often you use that muscle. So the bladder is exactly like that. When it's working well, we don't think about it. But when it's not working properly, you're getting up at night, or in the cases of many men, you may have some leakage.

If this is something that's affecting your quality of life, there are really good solutions these days. Penn makes the guard and the shield. The shield would be if you have some leakage on occasion, if you have heavier leakage, you could use the guard. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments.

You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Alright, guys. Bang, bang. I've got Jake here with me. I thought a great place to start is you guys have a very unique model to an outsider in the real estate industry.

You guys buy real estate, but you also operate the hospitality business inside of that real estate. So kind of you're double dipping. I think of that as like a McDonald's strategy, right? Own the real estate, run the restaurant. Why is that the area of real estate that you're so focused on and think that you can generate such great returns from it? So I grew up in the hospitality business ever since I was a little kid.

I was working in restaurants when I was way too young to be dealing with alcohol. and it was a business that my dad had when i decided to come into our business there was three hotels and my vision was always to grow it so the short answer is i fast became an expert and really obsessed with hospitality because like you said it combines real estate investing with an operating business most real estate businesses you just buy the real estate you sign a long-term lease and that's it maybe you do some value-add hospitality you have to do that plus every single day i need to sell a room i need to create an experience i need to design a restaurant i need to pick out food i need to sell that room every single day and convince people

that this is where they need to spend their money to create these special moments and that is the most exciting thing about hospitality it's also the biggest risk with hospitality it is definitely the most complicated form of real estate out there which can lead to great returns but it's definitely more risky than a triple net lease that you're just signing yeah so i think most people who kind of dabble in real estate maybe not professionals but they own some real estate or if they've done some real estate investing they'd be like why would you spend all the time banging your head against the wall to do all of that when you could just buy the building triple net lease it and then like chill and a check shows up every single month i'm

guessing it's because you guys like well if you're good at it then there's this kind of outsized return that you can generate what makes someone good at actually operating and when we talk about about hospitality, I think it's important to clarify, you guys really aren't running a ton of restaurants and things. It's specifically around these hotels that you guys own and operate. What makes you good at actually operating those types of businesses? Well, we do do all the food and beverage outlets in our hotels, and that's a huge differentiating factor. So the type of hospitality that we don't focus on is commoditized hospitality. Because if you're going to do that, I always say you might as well do apartments because there's no secret sauce. It's very

commodity driven. It's expected. The returns are all kind of guaranteed and you can really plan with apartments. It's very similar, except you just have an annual lease. What we do is highly differentiated lifestyle properties, boutique properties where we can really out compete our competition because of what we do. And we do it from design. We do it from food and beverage and we do it from the experiences that we create on property. And by the way, this doesn't have to be some super cool hotel. Any hotel that we own, whether it's a Sheraton, a Hilton, or the Delmar, which we have in Fort Lauderdale, we try to elevate that experience above what a guest would typically experience. If you're talking about a Hampton Inn on the side of the road, that is pure

commodity. You're basically in the real estate business with a little sprinkle of hotel on it, but it's not what we do. We are experts in the hard stuff and we do it because I'm passionate about it. That's what I want to do. That's where I want to spend my time. So when you are going into a project, let's just take it for kind of from square one, you're trying to find a good location. Are these usually existing hotels that you're just taking over and kind of, you're going to rebrand and increase the operational efficiency and effectiveness? Or are you guys going and finding land and you're like, we're going to build a building from scratch and we're going to do this like what is the kind of ideal deal that you guys

look for we do both so we do ground up development and we find existing buildings there's a lot less risk with finding these existing buildings but it's also a lot more fun and the upside potentially is greater if you go and develop we focus on high barrier to entry markets those commodity roadside type hotels that i talked about anyone could just build a hotel across the street from you down the road from you and the barriers to entry are very low we want to focus on areas where there's less competition because it gives us a greater opportunity to compete. Now, the way that real estate's going, a lot of sites that could even be possible for hotel development are just getting priced to other asset classes like office or multifamily. So the amount of hotels coming in

is actually far less than it was before. But I always say it's pretty simple. We want to invest in places that we want to go. That is typically these smile states. I mean, where are the emerging neighborhoods? Where are the existing high barrier to entry markets that have the environment and the landscape that people want to spend money? That might be a resort, but it might also be a downtown city, but it has to have that energy and that life. When you go into a hotel that is not yours, so you're on vacation somewhere and you go into a hotel, what are the things that will either make you say this is an amazing experience or this is a complete shit you know experience and like they don't care at all are there like little tells on either direction that

you're paying attention to i went into one two days ago and i was like this is why we're in the hotel business that was the experience and the feeling that that hotel gave me so you walk into the hotel the design was stunning it was actually the addition hotel in tampa the architecture was beautiful there was a coffee shop all the pastries looked high-end and stuff that you'd want to eat the bar was laid out well we went up to the rooftop pool it was active the bartenders were all in great uniforms there were flowers and plants and great landscaping and there were people laying out and it just is the type of place that you're like all right this has a vibe this has a soul someone cares it had a unique smell it had a great nightclub there someone put the care and attention

the detail to make this thing a success and that's the whole point of why you do it otherwise just make it an apartment that you don't have to think about it anymore if you're going to go through the brain damage and the investment to do a hotel you might as well put all the time and effort in to make it unique and make it memorable yeah what's interesting about this is uh to a hotel goer which i've traveled a ton over the years uh i am not the what is the vibe what is whatever i've I've usually been like, how close is it to where I need to be? And like, what is the price? So you're transactional.

100% transactional. But I will say that over the years, I realized there were certain places that I went where I was like, that place is nice. And it almost became this like joke, whether it was with close friends or my wife, where I'd be like, oh, the X hotel in this city. And I'm like, listen, I don't know. I just remember that hotel. And you can't even necessarily like pinpoint what it was. I think you just know that like somebody cared or whatever. And so then when I found myself, even though I thought of myself as the transactional person, I would be like, oh, I have to go to that city, see if there's a room in this place.

And I would actually think of the place before I thought of the price. And so it was one of those things where if you ask people what they do, they tell you one thing. But if you watch what they do, they may actually do something else. Why is that? Do we like to think of ourselves as economic buyers, but maybe actually we kind of buy with our heart and emotion sometimes? Well, I think post-COVID, this has completely changed for everyone, and people are placing a higher emphasis on experiences, and experiences don't have to be high-end or expensive. You can have the coolest hotel that brings back some great memory for you, and it could be like a three-star hotel, or you can have the same thing at a five-star hotel. So I think it's like anything. Look at the iPhone. People appreciate good design. They appreciate well thought out aesthetic. But more importantly, they want to feel like they identify with a hotel like staying here says something about me. Maybe it says I have taste. Maybe it says I know the great neighborhood to stay in. Maybe it says that I am a big foodie and I like the food and I like the bar at this hotel. So I think people want to identify with that. The second thing is when you're traveling for work, your primary focus is work.

now people are starting to travel for work and combining that with vacation so you're saying hey i'm going to bring my wife or say hey i'm going to stay for two days my wife's going to come for the next two days and we're going to hang out for the weekend and that becomes the moment in the experience that you're looking for versus what was just before was like hey i want like a clean room and like a decent shower and coffee in the morning and i'm out when you look at a deal walk me through like the economics one of these things right so um i don't know what kind of like a down the fairway deal for you guys would be, but like, let's say that you were going to take over an existing building. So you're going to purchase the building and then you're going to

put a complete rebrand of the hotel into it. How much money does that cost for you guys to actually kind of get started and get to just opening day, if you will? And then what does it look like to actually run one of these things? And how do you think about the potential investment returns for investors, including are there separate investors for the real estate and the operating business? Like just kind of walk me through one of these deals. Yeah. So I'll give you two really good recent examples. We bought a hotel a couple of months ago in Boca Raton, Florida, so pretty close to where we're filming this. And I think we paid $40 million for the hotel, and we're probably going to put $5 or $6 million into it. The reason why we love that deal is it's an incredibly high

barrier to entry market, and all of the money we're going to spend is going towards guest-facing return on investment items. So if we want to look at adding a bar, we're going to say, how much extra revenue will this bar generate? Or what impact will that have on the overall guest experience to justify whether to do it? Take another deal that we did, where we bought a hotel in just outside of DC. Great deal. The hotel was ripping before COVID. We undertook a massive renovation. We probably spent on that hotel $30 million and we bought it for $30 million. So a huge amount of investment. The negative to that deal, which maybe will pay off down the road when someone else buys it from us, is that probably half of that spend was behind the walls, replacing windows, replacing a new skin on the building, and the other half was front-facing. So the key is to really identify those buildings that have great bones, that the money that you spend is going to impact the guests, and you're going to get a return on that investment.

And the way that we finance these deals is with debt, and we raise money from institutional partners or high net worth investors. And they come in, and typically we're shooting for mid to high teens IRRs, and I think a great deal would be 20 IRR with a multiple of money. So maybe we hold that for five years and you'll double your money. Or if we hold it for a little bit longer, maybe you'll triple your money. So those are kind of the economics that we look for. But when we invest in these deals, we are always going in saying, how can we improve it not only by upgrading the management, which is, again, unique to us because we're vertically integrated.

So how do we upgrade how they're spending money, how they're charging for the rooms, what their expenses are, but also how do we upgrade the physical product, which goes back to the real estate side? So how do we renovate the rooms? how do we make a better bar how do we make a better guest arrival experience and one of the cheapest ways to do that frankly is with landscaping so a big priority for us is always to go in and hit the landscaping if we're in florida to make sure the pool is great to make sure there's an outdoor bar because that's what people want and these preferences have really

changed so a lot of these older hotels you're stuck with things that you're never gonna to use or need. So part of the challenge is figuring out where guest trends will be for the next five to 10 to 20 years and repurpose some of these older hotels to do that. There's certainly a lot of upside to doing that, but you can also build new and design it exactly how you want. What are some of the trends that you guys think are changing? Like what were people doing that they may not be doing? And what do you think people will be doing in the future? People have placed a huge emphasis on really inspired food and beverage. So I think every great hotel has to have a coffee shop right by the front door. People want to go. They don't

want to go to Starbucks, by the way, anymore. It's like that's feeling too commodity. They want to go to kind of this hipster brew spot and get their coffee. I think a rooftop bar is also critical to create that life. And the other side of that is more of a compact food and beverage. So if you're going to have meetings, does it need to be these huge, massive ballrooms if you're outside of a big major metro like Vegas or Miami? Probably not. Maybe it's cooler, more creative type meeting spaces. One thing that we're also starting to do is put in podcast or Zoom rooms. So if you're a podcaster and you're traveling, you want to still be able to execute your podcast. And how many Zooms have you been on where someone's like in their hotel

room and you see their messy bed in their background like it's a joke? So building these things is definitely a way of the future. Fitness is another huge thing that we prioritize. And then like the offshoots of that so maybe a golf simulator so that is one of the things that you can put in you know if one of these big hotels have so many extra meeting space put a golf simulator in one maybe you put a children's arcade in another and you enlarge the fitness center that would be really another big priority that we focus on and then another trend is i think people are going to be less reliant on brands and more focused on the hotel that identifies with them So they're going to probably start to shy away from Marriott and Hilton as a name, which to combat that, those big companies are creating what's called a soft brand.

So you're still getting their reservation system. You're still getting that power, but they're letting you call the hotel whatever you want. And that is going to be a white label solution where you get all of the infrastructure, but you can call the brand whatever you want. And then they'll get the data as to what's working, what's not working, and they can kind of move. um what i think is fascinating is this idea of like what are people doing in the hotel rooms right so podcasting is one thing um also uh i've never really understood why uh inside of a hotel there seems to be like sometimes really big hotels like two floors nobody's using except for like the big conference right and when you walk by them it's always weird because like sometimes somebody

will sneak in there to do a call or do whatever how do you think about actual like dedicated space So a golf simulator, you're not like rolling in and rolling out, right? It's like, you're pretty much putting it there. It's static. It's fixed. Have hotels started to do anything with like dynamic type spaces where you could basically say, Hey, there's a children's arcade right now, but if there's a big conference and we can actually make more money, but you almost get into like a dynamic pricing for the space

that is not for the actual hotel guests, or is that just too complicated logistically? And so it's better just to kind of go in with a thesis in terms of what the trends will be and stick to those. They were trying to do a lot of that pre COVID. There were all these little startups that were kind of like renting rooms by the hour during off times or allowing you to check in later and you could use an app and use these rooms for little meeting areas if you had a longer flight. But I think all that's really just BS. I mean, the reality is you have to design and build better spaces so they're not being wasted or you have to incentivize your sales team to really go sell those spaces so they're generating revenue. But there's definitely in a lot of these older hotels, these huge, big spaces.

Like imagine back in the day, you've probably seen these pictures in the 80s of like people having the big buffet lunch, like all the workers pour out of the building and they go to the hotel across the street and they have this big buffet lunch. That's not happening anymore. So if you have a hotel that's bought in the 80s, you have to figure out what are those built in the 80s. You have to figure out what that space becomes. And I don't see a huge business for different uses or temporary uses or gig economy uses, something like that. You've mentioned a couple of times meetings. obviously there's people who will fly in for an event right and they'll kind of do whatever that event conference whatever is there uh but also one of the things that i've noticed for my own

behavior and and when other people come to visit is they will be in town for a conference you know at a conference hall or or some other event and they're like hey just meet me in the hotel lobby yeah but the hotel lobbies are not built for meetings yeah they are very much usually built for uh kind of bench seating you know like you're waiting for maybe somebody to go get something it just is very much like this is a hotel lobby is there a way to basically just repurpose space like that as well for again it's not a closed area we're going to do a podcast episode or anything like that but like two people just want to meet for an hour in the lobby and feel like hey not everyone hears my conversation but also i don't feel like i'm in you know kind of like a jail cell

uh talking to this person like how do you kind of deal with things like that well the hotels that you were describing i think fit in that commodity hotel category where you're sitting this lobby and it just sucks. Like you don't feel inspired. There's nowhere good to sit. There's nowhere good to grab a coffee and you can't have this conversation. Compare that to the one hotel in South Beach, which is probably the best hotel in South Beach. It's certainly the most successful hotel in South Beach. That's a lobby that you want to be in. You want to, after your meeting, then have a drink in that lobby. So I think A, these spaces have to be better designed. Another thing though, that we're also doing is we're creating these little, almost imagine like

a glass fishbowl in the lobby and there's a little keypad you can go there and you can swipe with your credit card to book that room for 60 minutes so you don't have to call the hotel and like talk to a salesperson and go through all this nonsense you guys can just come in say hey we're gonna have a little impromptu four-person meeting there's a tv in there you can connect your uh apple computer to it and knock it out right there and so that's an example of something that we're doing in lobbies that otherwise would just be big vacant airy spaces or we're getting rid of a restaurant like you know if you're in a big city unless you have a food driven restaurant with a great cocktail program like no one's going to your restaurant your hotel unless it's really a standalone style

restaurant so get rid of the restaurant and put in some of these other uses that you just mentioned yeah i um uh over the holidays went to naples for a few days and a couple of friends and my wife and And we were staying in a hotel that there's two things about it that was pretty interesting. One, in the lobby, they had a gift shop, which I was pretty surprised actually how many people were in the gift shop. But two was there was this big open area with horrible seating, the whole thing. And then they had two restaurants on the first floor. And they literally were like across the little walkway from each other. And one had kind of a squared off bar, right?

And people were sitting there watching, whatever. And on the other side, I watched for multiple days. People would go in, they would eat breakfast, and then they wouldn't go the rest of the day. It was just closed. You couldn't even go. And so I was sitting there thinking to myself, man, how much money could they possibly be making off of the meals in the morning? And so I went and I asked and I was like, hey, are people paying? They're like, no, it's included in the thing. And I was like, oh, so not only is the space going unused, but actually they are losing money essentially, right? Because people are not going to go to that hotel simply because they get the food in the morning. They're going to go because they want the location. They want all these other amenities.

And so if you rip that out, like what else could you do there? Or I would flip it and build a restaurant that people want to pay, that people are going to come from the outside to have meetings in the hotel. I think every great city needs the great hotel where you want to come and have a coffee and have a breakfast meeting at try and make that your hotel. And ultimately that's our goal in what we do so that we don't have to worry about giving breakfast away for free. And then having this vacant restaurant sitting there all day, talking about the economics. Uh, if you think of a gas station, they sell a lot of different things. Gas is usually where they make a lot of the money, right? For you all, is it, you're making money on the rooms, you're making money

on the food and beverage you're making money on like all the incidental type stuff that you could like rent scooters or like whatever other crazy things they could do the valet whatever like where do you guys actually make money and they're like the true profit centers of a hotel versus things that people may be paying for but it's actually not what the the purpose of the hotel or you guys are excited about doing yeah the biggest profit center typically are the rooms the second one is going to be food and beverage but there's a high cost to that so you want to make sure that you have a great outlet and a great bar so you can generate as much revenue as possible. Stuff like spas and scooter rentals are amenities and they really don't make any money.

The key is to maximize the amount of non-hotel guests that are coming to your property to use it. One thing that all the hotels in South Beach are doing now and other places, they're creating these membership clubs which i think is really interesting because you can join there's maybe it's seven thousand dollars a year all that money is basically going to subsidize the operations of the hotel so now all these other things that they want to do has such a better flow and a better margin but you can only do that in certain hotels you can't do a membership club at a random courtyard in chattanooga right it's got to be the cool hotel i also think part of what you're getting at is these hotels are so big and a lot of the hotels that i like staying in now are small

and they have a sense of scale that really resonate with people and some of the coolest hotels that i've been to are ones that it feels like you're staying at your chicest friends like pool house or something like that or it feels like you're at a private members club where like the guests are curated and the people coming in and out are people that you want to hang out with again very different from the commodity stuff yeah which is where we can generate the extra return if we're just going to do commodity stuff then there's no special sauce there we were talking a little bit before about barry sternlicht and part of the reason why he is so successful is because he knows numbers better than anyone else but he understands people's energy and the vibe and

how to generate more revenue to make more profit by creating these spaces that people want to be at they want to spend money at and they want to stay at a lot of big institutional hospitality investors are capital allocators and they happen just be allocating capital towards hotels but they really don't have the soul and the dna for hotel investing they could just do it as good they were doing apartments or industrial or got it whatever else i got a million questions now so uh it seems like there's a trend of brands whether they are restaurant brands whether they are car brands whether they are you know something outside of the hospitality industry now getting into sometimes it is uh kind of condos and apartments other times it appears that they're starting to try to get

into the hotel business as well um is that leading to kind of this idea of like hey if we have brand if we have a following if we have kind of an experiential uh component to what we do and people it really resonates with if we then get into the hotel game like maybe they will come and stay here i don't think like porsche has a hotel but i know that they have some residential buildings that they're building is that something that you think will become more of a trend where these brands will try to get into the kind of hotel and hospitality game or is that like yeah they're probably going to stop at the apartments and they actually won't get into hotels i think it's kind of silly out of condos too like you know in miami the missoni condo building like

who cares there's missoni pillows you could just you know buy those in the store and put them in in your condo what does that actually do to drive sales i don't know i think in hotels it's very similar unless there's some sort of experience that they're laying layering into that so if you're creating the land rover hotel and there are these remote outposts where you go to do off-roading and all these cool activities there's an amazing company called 11 experience which was founded by a former blackstone guy and it is all known for kind of adventure sports skiing hiking mountain biking all this stuff and they have these great lodges that are all their remote that to me is very interesting but I think that people are

gonna really shy away from brands and put a greater emphasis on like a collection so this is what our collection stands for but each property is unique and different in its own way because when brands start to get really powerful everything starts to get standardized and you start to lose your soul and identity. Yeah. That brings me to Airbnb, which I think there was a whole multi-year trend of people saying, I'm going to a new city. Hotels are stupid. I'm going to stay in an Airbnb. That makes me cool. That makes me be able to stay somewhere that feels not like a kind of standardized hotel. It feels like the pendulum is swinging back now a little bit. And a number of my friends and

even myself, like, eh, Airbnb, you know, I've stayed in enough of them now. Like it's, you know, sometimes amazing. Other times, like, where's the key? Oh, the internet's slow. You know, all the problems that people have had in those experiences. Are you guys seeing that trend as well in data or kind of anecdotally talking to people where people are actually saying, I do prefer to stay in a hotel versus Airbnb when I travel now? Hey guys, what's going on? I hope that you're enjoying this conversation, but I wanted to interrupt for a quick second and tell you about a brand new conference that I'm hosting on March 4th at the Miami Beach Convention Center. The event is called Lyceum Miami,

and tickets are completely free for anyone who wants to come. I'm bringing together many of the most popular guests from the podcast over the last couple of years. Some of the guest speakers that we've already announced are people like Vivek Ramaswamy from Strive Asset Management, or Delian and Mike Solana from Founders Fund, Chris Williamson from the Modern Wisdom Podcast, Cody Sanchez from Contrarian Thinking,

and billionaire Christian Agermeyer, among many others. I've got a number of amazing surprise guests as well, some that you definitely will not expect, and others that come from walks of life that you will be scratching your head as to how I even got them to show up. But come check out Lyceum Miami on March 4th. The Lyceum was a public gym in Athens, Greece,

where people used to come together, talk about ideas, and debate topics that were important to society. I want to meet people in person, in real life, Once again, after three years of a hiatus from real life events. And so I'm hosting the event. And as I mentioned, anyone from anywhere can come to this event completely for free. All you need to do is go to LyceumMiami.com and you'll be able to pick up a free general

admission ticket. Make sure you claim your ticket in order to get in through the doors. Lyceum Miami is going to be a great time. So come check it out. Come hang out with me. many of the popular guests from the podcast and other like-minded individuals lyceum miami march 4th miami beach convention center i hope to see you there all right let's get back into this conversation pre-covid everyone in the hospitality industry was freaking out well the experts and the

economists were freaking out about airbnb and vrbo and this whole shadow industry and then it started to get more regulated. But the reality is it's just additional supply that's out there, but it's very different. I think if people are looking for a big house, sure, Airbnb might be better. But if you're a business person, if you're traveling with your wife, a lot of the conveniences of a hotel cannot be overlooked to the challenges of Airbnb. And I think Airbnb and the short-term rental model is completely changing. All those people that wanted to, I don't know, like house hack or whatever that bullshit's called you know during covid and like make all the side hustle if they weren't doing it in a way that's differentiating themselves now they're stuck with this house

that's probably not earning any income so there's probably short-term rental 3.0 which is basically setting up a hotel within your collection of short-term rentals the problem with that is is scale. I have 200 rooms. I can spread all of my costs over my rooms in one hotel and provide these great experiences and all these amenities. You just can't do that in an economic way with one little house or two little houses. So that's a challenge that I think there's going to be professional hosts that try and do it, but the margins still aren't going to be as good as a hotel and you're still not going to have a bar and you're not going to have all the fun. I have a friend who saw the TikTok, Instagram, like short-term rentals. Hey, I'm going to buy a single family home basically and rent it out in the Airbnb. And he's pretty successful in the real estate industry. And he said to me, he goes, oh, I know what those are. And I was like, do I dare ask? And he was like, oh, those are uneducated slumlords. And I was like, wait, what? And he was like, no, like literally the houses that they are getting. He's like two things. One is these people don't understand all the dynamics of real estate and kind of all the things you're describing.

Because but second of all is he goes, I'm using slumlords is this like bombastic term. But actually what they become is like the party house, right? Somebody is coming in like they are only there to use it in this very transactional way. And naturally, they will treat it differently than they would if they were at a hotel or anywhere else. And so it was fascinating to me to kind of understand as well, like, what you do inside of where you're staying is really some way determined where you're staying, right? And so like, if you go stay at a really nice hotel, like you're probably not fucking around, right? you're probably just going to be like hey i should respect this place like or they're going to kick me out versus the airbnb you know people obviously do all kinds of crazy stuff yeah i think you'll find in luxury hotels there's still crazy things that go down but what's the craziest thing oh well i mean you could just think of all these rock star parties like that what's the craziest thing you guys have dealt with uh well i mean we've actually had uh you know i mean we've had like fbi raids and like you know there's seriously four-star hotels i mean you have people coming in that are criminals it's not on the whole but you know certainly a hotel so you guys literally

operating a hotel you guys had the fbi show up to do a raid we've had um i don't even know if i can say this we've had people that were uh very high up criminals basically stay at our hotel we didn't know about it you know very wealthy and the fbi contacts us after to basically you know get some information what were they doing you know and we have to be careful and it's a little awkward but um on the whole we rarely have problems like at my level i do not get calls i can't even remember the last time i got a call from one of our team members that there was an issue that they had to tell me about in a hotel so compare that to airbnb that's a totally different yeah what do you guys do from a marketing standpoint that kind of helps drive traffic is it uh it's pretty amazing

hotels are literally stuck they're 10 years behind yeah your world of technology so things that you would think happen in hospitality just don't and it's really frustrating part of the issue to that is these big brands control a lot of the technology and they're just slow moving so think of like an airline think of your frustrations with an airline similar issues in a hotel now you can check in with your phone and do all that kind of stuff and we have all the door locks you know can be open with a phone that stuff's easy but certain things like guest preferences transferring from hotel to hotel, even four seasons, it's very tough for them to do that. When you think it'd be really easy for them to know the last couple of four seasons that you stayed in and what you did there, it's really

hard to execute that. So I think that's a huge opportunity. The other big challenge, and it's also a challenge with short-term rentals, is pricing. So there are some algorithms, but a lot the time we have a team of revenue managers all their job is is to price and change the rates on a daily hourly minute by minute basis based on whatever they're seeing in the property but it's still a very manual process it's not done by ai as much as you think it could be and that's probably going to be coming but there's definitely a lot of things that have improved like for example we have mobile ordering at all of our hotels so think of the time you're sitting at the beach in miami and you want to order food but you got to like flag down the person to come take your order well now

you can just do it on your phone and it'll just get delivered to you from not ubereats but from our hotel's kitchen and from the bar so that's an incredible amenity but a lot of people have tried to over complicate what guests really want and a lot of the times the things that they want are pretty simple like being able to order on your phone yeah when you think of these hotels and kind of building them out is there a number of days in a year that you're like okay if we fill this room 22 of the time we know that we've got a kind of break-even point or it's more than that and the first time hoteliers actually figured out what their break-even was was during covet When literally all the hotels closed and slowly business was coming back, you could tell that

these hotels were breakeven. And I think, by the way, this is before debt service. So that's a whole nother going back to the real estate side. So breakeven maybe at 40%, depending on the type of hotel. If it was a higher end luxury hotel and you have higher fixed costs, it could be 50% or 60%, which is actually lower than I would have thought in terms of you basically, let's say it's 40%, you could have a room empty 60% of the year and still not lose money. Now you're not making money, right? And obviously you layer in all the amenities and all these other things that may change some of the economics, but to be vacant more than you are filled and still be in a decent position is like a pretty good kind of floor to have, right? If you're operating one of these

hotels, if you don't own the real estate and kind of all the caveats. The more interesting way to look at is actually the opposite. So at a certain point in an amazing, in a great hotel, whether it's a three-star hotel, like a Home Two Suites by Hilton or the One Hotel in South Beach, once their revenue and occupancy hits a certain level, the flow through, what comes down to your bottom line, your net profit at the end of the day becomes so large because you don't have to increase your fixed costs with all of that incremental income and occupancy that you're generating. So there's some variable costs that go up. Like you're going to have to have some more higher housekeeping costs, but because your hotel is a hundred percent occupied, you're not going to have to

hire 10 new chefs and two new GMs and that whole thing. The system is running. So all that money is flowing to the bottom line. So if you're in a market that has higher occupancy, typically the flow through will be better, which is why we tend to focus on these markets where people want to be. You know, you often have investors, particularly in hospitality, looking to these markets that sound like a great recovery story. And most of them tend to be in places where the government is pretty restrictive and it's cold. And you just look at it and you're like, well, I don't think that that many people are going to be there. And then you go drive around like, look at all these hipsters, look at all these cool coffee shops and tattoo places. Well, like, OK, but that population is there and it's probably not growing significantly. Consequently, somewhere like Miami or Florida or Texas, very different. So we try and invest in these markets that have more occupancy and much more diversity of demand.

so what happened during covid is a lot of these big hotels their demand only came from business travelers so when that dried up like who's staying in the big hilton in times square like no one else resorts benefited immensely because all of their business was leisure and that kept on coming and now they're just going to continue to do well because group business which is like big meetings and kind of these boondoggles that's now starting to come back too so the places that people want to be it sounds so simple location location location tends to prove out in real estate and same with hotels so resorts are boondoggle profit centers resorts are awesome so one of my goals for the next three years is to acquire and never sell asset a couple people i know own them it's

something sure maybe you sell maybe you trade in and out of partners but it is an iconic asset that you just can't replace what would be examples of ones that other people own so the one in south beach is one a buddy of mine owns a hotel called terra nia in rancho palos verdes california the beverly hills hotel would be an example it's like iconic hotel in new york an iconic hotel that just has such a history and that is woven into the fabric of people's lives like when when someone says, Hey, meet me here, that says something like, you know, what you're going to get. If you go to the Fianna in Miami beach, like, you know, the kind of experience that you're going to get. How much of the experience is the, uh, was it golden gold plated, uh, mammoth or whatever

they got out there? Like things like that, which, uh, have zero revenue producing, uh, direct, you know, to the bottom line, uh, capabilities, but is very iconic. There's nowhere else I've ever seen that before. Like how much of that stuff, uh, can you kind of put some economics or data around to know should you put that into a location or not? It's good to be a billionaire. So a lot of these never sell assets happen to be owned by billionaires because it's a great place to invest your money. You're going to own it over time. The real estate will appreciate over time. You're going to get cash flow. You're going to get tax benefits. But then you can put your gold mammoth that won't fit in your house that no one will see in your hotel. And that's an amazing

story because, you know, the guy that owns that hotel is not Mr. Fianna. That was like a friend, a brand guy that he came up with. Hey, I'm going to build a whole city in Miami around my friend. I mean, talk about having friends in high places and really trusting someone else's vision. And that has proven out to be an amazing asset filled with gold mammoths and art museums. And there is a lot of elements in that using that as an example that probably don't make money but it adds to the experience so in one way or another maybe people are paying a couple thousand dollars a night because they get to take a picture of that thing and they get to walk by it every day and it adds to whatever they're seeking um when you think about what they're doing there or other hotels

you mentioned earlier like a coffee shop in the lobby or whatever do you put those in there and try to make them profit centers or are those items hey we need to be able to cover our costs here but it's really augmenting the experience so that then we can sell hotel rooms like how much of this is uh you guys are breaking out the actual economics and trying to make everything profitable um outside of spas or whatever versus like it's really just get to break even and then just push more and more people here to actually rent these rooms we are trying to make everything profitable okay so that is the goal we have investors we raise money we want everything to be profitable, but we also want it to be a great amenity for guests because we think the hotel

can't maximize its revenue potential if they don't have something like this cool, iconic coffee shop. Yeah. I guess a better way to think about it is like, is there a single P&L for the entire hotel or do you actually break them out into separate P&Ls and then you're literally looking at it like, should we shut down the coffee shop because it's not making enough money? That's a great question. So how it works is you have one summary P&L, which includes your rooms, your food and beverage your spa you know your cabana rental all that stuff and then you have details so each little department like that has its own pnl got it so you can look like wow my rooftop restaurant is whipping it's doing amazing but my like ground floor restaurant uh that sucks

like i think we need to reposition that or you might say hey we're fine subsidizing this ground floor restaurant because it's important for the kind of like look of when you come into the hotel we want a certain appearance we want to hold it to a certain standard the other really cool thing about a hotel is food and beverage like restaurant business is really hard it is really hard to make money and with a hotel with all this other revenue streams coming in you can actually subsidize and pay for really good talent pay for really good design in a standalone restaurant that would never work. So for a hotel to have a good restaurant, I think is a great opportunity for the hotel, but it's also really important for the neighborhood and the hotel should vocalize

that probably more like all the things they're doing. When I think of hotels that off the top of my head, I can remember that I know other people would know if I mentioned them. There is this word that keeps coming up unique in my mind. And that uniqueness is actually two different things, but I think they're related. One is the unique brand. So when you think of the Beverly Hills hotel, like you just, when you see it, it looks different. It just, you're like, okay, there's something here, right? Um, there's one here in Miami, which I actually don't know if it's been successful or not, but, uh, I think it's called strawberry hotel or something like that. Um, no, it's called the good time hotel. Okay. So like already, but in my mind, the

branding is a very different, right? Yeah. And, um, then there's the experience once you're actually in there. And so I think about it as like, you could have a really unique brand and a shitty experience nets out probably negative in terms of the people's thoughts on the, on the hotel. Um, but I actually don't know if it works in reverse. Like if you don't have a unique brand, but it's really, really good service, is that a net positive or net negative in people's minds when they leave? And it feels like it's obvious you'd want a really unique brand, a really unique experience. They're both, you know, knockout factors. And so you put those together and it's like a home run and you're very successful. But if you had to choose between the

branding versus the experience, which one is more important? The experience. So you're hitting on something that happens all the time in the hotel industry. You'll read a press release and it will say, introducing X hotel brand. Our goal is to have 10 of these amazing hotels in these type of cities throughout the world. And we're going to take over the world with this amazing hotel brand. Well, you don't even have one. Like what if this whole thing sucks? like one of the things that i find so ridiculous in hospitality is having to launch this big brand and having nothing to back it up with so the approach that i think is a better approach is to create this iconic hotel create this experience hotel and then use that to leverage creation of a

brand but everyone wants to like raise a whole bunch of money around a big concept with no proof. And they do this in other industries too. And there's a huge amount of risk and it might not go anywhere. Yeah. How does interest rates start to affect you guys? And obviously like the macro environment. So we know that it affects travel and things like that in general. Obviously, recessionary periods, people will just spend less, go on less vacations. All that's pretty self-explanatory. But when you start to think of the more nuanced conversation around Fed policy and interest rates, you guys use debt. and that's a huge piece of driving out performance here. Is it something where it's pretty tried and

true when you guys are going in with these fixed mortgages and not taking a ton of risk? Are you guys doing interest-only adjustable rate, five-year balloon payments? How does this work? All of the above. Okay. All right. And how important is things like Fed interest rates moving in terms of hotels specifically? So it's actually very important. And I think it's important in two ways. One, it's a big opportunity for us because during COVID, we raised a fund and made a tremendous amount of what's called preferred equity investments in deals. At that time, it wasn't as a result of rising interest rates, but the concept was the same. The cash flow was

reduced. The owner needed to hold onto the asset. We could come in and there was an asymmetry at the time, and I think there's going to be one again, between the amount of risk we were taking relative to the reward the return that we were getting and in a hotel you can get fixed rate debt or you can get floating rate debt in our portfolio we have a lot of fixed rate debt we also have floating rate debt it is phenomenal to see what has happened over the past six months literally like you can have cash flow that has evaporated because it's all going to pay interest rates there's ways that you can hedge it which we've done and taken advantage of which you never think those are going to pay and now we're in an environment where those are actually paying

And what are you guys doing there? What would be an example of something you could do? As a hedge? Yeah. So there's something called a rate cap. So you basically buy a financial instrument that says if the Fed funds rate or SOFR, which is the rate that it's measured off of, moves above a certain level, then the counterparty will actually pay you. And if it doesn't, then you bought this thing, you paid for it upfront, and you theoretically get no value from it. And historically, over the past 10 years that's what happened lenders would require you to buy this stuff it would never

come into play and you just blow it now like you're actually getting a check and recently i had to talk to one of our investment guys because i'm like hey we're in this interest rate cap like what do we do how do we get the money like we had to call them and see how it happened and i know that we didn't think we were gonna get paid but actually like here's our bank account we had to figure it out yeah like does it come to us or does it come to the lender and actually you know in many cases this goes to the lender which we didn't know so interest rates are incredibly important the question is what's going to happen so you get debt from primarily two or three different places in the hospitality world traditional banks cmbs which would be

mortgage-backed securities or maybe a debt fund debt funds have no problem owning your asset whether it's a hotel or an apartment building or industrial cmbs debt which i'll probably never take again is the worst because you end up dealing with what's called a servicer in kansas who's like a 22 year old kid who has no experience doesn't care about you doesn't really care about the asset is literally just reading the words on the page and that's how he's making decisions and in those cases they probably don't want to take back the asset so we've seen certain instances where we've provided preferred equity to extend out that loan by two years compare that to a debt fund they're like happy to own your hotel they say it's not but

a lot of the debt funds that is their goal some of them it's certainly not so we've known ones that don't want to take things back and want to support you and have been tremendous to work for our banks have been and our debt funds have been tremendous to work with there are others that you can read about that are taking the stuff back now and maybe they can do it better if they actually take over an asset are they taking it over and trying to operate it or are they just well yeah they're going to call my management well you know if they take over my friend's hotel they're going to call me and have my management company run the hotel for them because they don't know what to do but they're going to put an asset manager in charge they're going to try and make these decisions but

ultimately they're going to sell it that's really what they're going to do maybe they'll put in an improvement plan depending on what needs to be done but to get back to your question over the next year year and a half there's going to be a lot of mortgages that are coming due and interest rates are higher it means your borrowing power is less so you're gonna have to pay down those loans sell your assets or try and extend them so there's gonna be a lot of opportunity for we traditionally invest in common equity but during covid we did a lot of preferred equity So we think there's going to be a huge opportunity for preferred equity, particularly with strategic partners like us who do this day in and day out. Explain to everyone in terms of people who have heard common and preferred equity will think of tech startups.

But although it's a similar concept, explain how that works exactly with the hotels. So typically in a hotel capital structure, you have debt and you have equity. The equity that people refer to is common equity. If you have preferred equity, it comes in between the debt and the common equity. And the basic premise is that the preferred equity has to get paid back first, plus a preferred return before the common gets any return or some return. So you're taking less risk relative to the return, but you're still an equity player. So you still have some control rights. You're not debt.

So you can't just force a takeover or a sale. but what you can do and the way that we often structure it is we do soft prep so we don't have to be paid like a mortgage like mezzanine financing we can be paid through available cash flow because we're making the bet that ultimately after two or three years the hotel is going to be worth more than what we're currently investing in at that value and we're going to get paid either along the way or at the end but you as the common holder do not have to pay us which is a huge stranglehold off their neck that other forms of financing would require like mezzanine financing or traditional debt what's the biggest lesson you've learned in terms of financing the

deals like what are some of the things that you wish you knew when you first started don't do cmbs deals would be one because when stuff goes wrong it's just a pain even if stuff doesn't go wrong it's still annoying relationships like with anything are key so you want to identify those lenders that can grow with you what happens a lot is groups start out with a lender and then they outgrow them and now they're kind of you know trying to find a lender that they trust that's been really important also specific terms so everyone always says well it's never going to to happen. But all this stuff actually does end up happening. So you really want to not just focus on the interest rate, the term, who the bank is, but what the specific terms are and the mechanics

of the loan. Because when you're operating this deal and you have to go through 10 different hoops maybe to access some cash that's locked up or to renovate the hotel, it becomes very complicated if you just, we'll deal with it when we get to it. So those two things, I think, have been probably the most informative for what we've seen coming out of COVID and even now. And then the most obvious thing is just to not over-leverage. Because I've seen too many friends

that with senior financing and mezzanine financing bring their debt all the way up to 80%. and that becomes tough to manage. What do you guys target? 60, 65%. Yeah. It seems like the folks that I know that are kind of the most experienced

and tend to do the best in real estate, that's about where their kind of upper limit of risk is, is about 60, 65%. And you should look at a deal as if you're not using any debt at all. So on an unlevered return, that's often a metric that we use. Well, that doesn't make sense

because you're always going to use debt. Sure. but you want to understand the deal from that basic notion. A lot of people syndicate deals in this sort of way where they're like, hey, you're going to get 5% of cash for the life of the investment on a yield basis, but at the end, it's going to be a 20 IRR. The only way to make that math work is if at the end, there's some massive improvement in the valuation that all has to come at the end. One of the things we like about hospitality is the cash flow along the way when things are going well is much higher. So sure, you want to have a big exit at the end of

the day and you want to have the asset appreciate, but you're less reliant on that in order to hit your ultimate IRR return hurdle or multiple, whatever it may be. Yeah, it's fascinating. What about the actual talent that you guys bring in-house? So I'm assuming that you have kind of I'll call like a home office in terms of the actual investment in acquiring the real estate and brand building and that type of stuff. But inside of the hotels, there's leadership. And then you've got kind of what I would consider, or I think most people would consider like kind of the service workers across the different verticals inside of a hotel. Those types of jobs tend to be hourly. They tend to be very high churn. They tend to be younger people,

right? Like all the things that would make it very hard to manage a large organization. How do you deal with that? Or what are some lessons you guys have learned there in doing that well? It starts from the top. So what happened when I founded Dove Hill, which is our investment company in 2011, with my dad, we ended up growing way faster than we scaled, which maybe is a common story for a lot of entrepreneurs. So at the time, my dad had three hotels.

Now we have 17. So we've grown a lot in a very quick way. And pre-COVID, the culture wasn't that great at the company. We had some really good people, but we had some really bad people. So coming out of COVID, our goal was to come out better than how we went in. So it started at the top. And we have an amazing head of people now. We do all this culture and team building stuff.

We set priorities. We have Monday morning meetings. It's just a totally different vibe. And that filters through to the property teams. but each hotel is like its own little business. So what I always find fascinating is some people don't put enough emphasis in creating that culture at the property. They might have a great corporate culture, but they don't have the culture at the property. And they hire what's called a general manager. That's the person that runs the property or managing director.

And they don't realize that this person is in control of a $50, $100 million asset. like this is almost like a CEO. So he has to create an organization and a culture that people want to be a part of. But there's a big mix of people. Like there's a lot of, as you said, hourly team members, and there's a lot of smaller amount of salaried team members. So in that sense, it's very different from corporate America because you're dealing with people that maybe don't speak English as well. You're dealing with people that have completely different priorities than some of the senior people but we have events we have parties we have newsletters engagement is key and we try and empower people to feel good and we want them

to feel like working at our hotel is different from working somewhere else because churn is really big and the the biggest challenge right now hotels are facing is labor post-covid it has just been a disaster frankly it's improved significantly and we've been able to get some great talent but there a lot of the the little secret in hospitality right now is that most of these hotels by are staffed by staffing companies and essentially they hire workers that the hotel couldn't hire And it's not because we don't pay them enough. It's because they don't have the proper paperwork. And I think what the hospitality industry is really now lobbying for is to increase the amount of work permits and to separate the conversation between immigration and work permits. there are avenues that we use like j1 visa where we get hospitality students from other countries to come in and work at our hotels and those are phenomenal people there are people outside of our

borders that want to work here it's figuring out how to do it in a way where they can pay taxes and it's done in a legal way and that's what the hotel lobbying industry is doing right now it's not for lack of paying people we've increased wages massively across all of our hotels in certain positions probably from the start of covid like take uh room attendance which is the largest group in a hotel in some hotels it could have gone up 20 or 30 percent um in some cases maybe even more and you're setting wages competitively against the other hotels around And wage is not always enough to get people in the doors because there's just not enough people.

So let's say that you've raised 20%, 30%. What does that look like on an hourly basis? One of the things that I'm fascinated by is obviously the national minimum wage is sub $10, and there's been a lot of talk about bringing it up to $15 an hour, but there's a ton of companies that have already, because of these dynamics, 18, 19, 20, I think McDonald's, Amazon, like multiple companies now are well above that $15. And it's always fascinating to me of like the free market somehow has accomplished something that the politicians haven't been able to yet.

And there's pluses and minuses as to why that happens, how it happens. Like, like it's a super complicated topic, but what do you guys think in terms of somebody who didn't go to school or goes to school, wants to come work at one of your guys' properties? Like what is like the average wage look like you think? It depends. So it's market dependent, but my sister called me the day and she's like do you know the average you know or the minimum wage in philadelphia is x i'm like yeah it's crazy i don't think we have one hotel that a starting wage is anywhere close to the minimum wage yeah it just is not competitive and that change and it was like that before covid but now it's even more extreme so in a market where the minimum wage might be ten dollars

We could be paying room attendants $15, $16, so 50% greater than what that minimum wage is. And sometimes that's not enough. And you guys are nice people, but it's not because you're like, hey, let's just pay as much as we possibly can. You're literally saying to yourself, what is the dollar amount to get people to come apply here that are good, qualified people who can execute and kind of be part of this company? And you're saying that even when you pay those wages, it is still difficult to find the best people. Yeah, and in fact, we're paying the staffing companies more because they've got to get their big and they've got to pay their people. So the cost to us ends up being higher. We'd prefer to pay it direct to someone that will come. So hopefully that transition will start to happen. But we are nowhere near minimum wage. And I would bet that any, you know, above three or four star hotel is probably well above the minimum wage. It's also we started to stop hiring outside of or inside of hospitality for certain positions.

So like traditionally, the front desk is like a total waste. They ask you like a dumb question when you come to the hotel, like, oh, are you here to check in? Like, of course, I have my suitcase. You know, I look like I just got off a plane. Of course, I'm here to check in. You know, that is what every single front desk agent asks the person. Oh, can I see your credit card? Can I see this?

It's just so transactional. instead wouldn't it be great if they said hey mr pump i love your podcast it's awesome to see you here by the way do you know we have a podcast room i don't know if you have anything scheduled but you can actually do it there oh and by the way like i need your credit card but to open that way is so much more interesting but people have been trained to do that in the hospitality business so we're trying to find people that are not in hospitality to be some of those front-facing positions. Obviously, management, you need this deep experience. You can't hire a cook that's never cooked before. But for some of that stuff, we want to find people that haven't worked in

hospitality. And that holds true for the corporate level, too. So we've been hiring some investment people that might not have a hospitality background. A lot of them do. A lot of them went to big, fancy Ivy League schools and whatever. That's great. But we also want to look at people with a different perspective. Our head of people and culture that we just brought on to our team has essentially no hospitality experience and i thought that was the greatest one of the greatest attributes about her yeah i am i have a couple friends that went to cornell and yeah that's the big mecca for all these like hospitality yes and people so uh two of the friends got married on cornell's campus yeah so we went and of course you got to stay in the hotel because they were

talking about it and uh it was fascinating to uh for those that don't know cornell has a uh essentially a hotel on campus that uh they have a restaurant they got a whole bunch of stuff but it run by the students. And that can go one of two ways, right? Either like it blows you away because they're young and hungry and they want to do a great job or whatever. It also goes the other way, which is like they don't know what they're doing and whatever. And you see kind of a little bit of both. But it was a pretty cool thing to kind of be there and literally realize like this is like a 20 year old kid who is responsible for the front desk and like he's going to figure it out right one way or another or maybe they fire him. I don't know how it works. And that's where

I mean, that's the gold standard in the U.S., and then there's European hotel schools, and our head of investments went to Cornell, and he went to European one, and just the mentality— Oh, he double-dipped. He double-dipped, and it's so different. So you're talking about a 20-year-old checking you in. I think at the European schools, the kids have to wear a suit and tie to go to their dining hall. It's like a full fine dining experience, so the students are serving other students, but that sort of old-school hospitality, I think in some ways it'd be great if it would come back. but cornell is a tremendous foundation i think it's so important though to layer it with practical on the ground training i don't want to say good things about cornell because my

friends will their heads will explode so they probably will cornell is whatever it's fine um you mentioned that you started the business with your dad uh he had already been kind of in the hotel business did you always want to go into the hotel business and kind of growing up around it or was it something that you just kind of were like ah i'm gonna do this because there was kind of an opportunity to jump into it. So when I was younger, I would always work these odd jobs in a hotel. My dad is the hardest worker you'll ever meet. And maybe in some ways, it was an opportunity to hang out with my dad because he was always working in his hotels and he loved doing that. And I was hanging out with him in the hotels and working too. But it's kind of like,

I don't know if a kid's dad is a race car driver and he becomes up and grows up to be a race car driver. It's a similar thing. I always knew I wanted to be in real estate, but I always thought hotels were the most difficult thing, and I had some sort of insider knowledge, and that could be a real competitive advantage. If I would have went into some other form of real estate, I would have done well, but I would have been setting aside the advantage that I had. And now, as we continue to grow, we'd like to invest in other real estate asset classes. But anything looks easy after you've done hotels, which is much better than going the opposite way, going from industrial to hotels, completely different. Yeah. How do you guys operate together?

Father and son. Yeah. I work with a number of my brothers and all this stuff. So how have you guys found is the best way to work together? Because I'm sure there's some amazing moments and then I'm sure there's some like, hey, are we going to see eye to eye on this thing? You nailed it. and uh so he won't listen to this so you can say whatever you want yeah he won't i mean he it's it's pretty funny i'll send it to him so he'll figure it out but it's a system we'll have to show him how to use youtube um but my dad is just super old school i mean literally came from nothing worked his way up in the hotel business and i think was incredibly proud and humbled with what he created as he should be because it was phenomenal to have three hotels in in a major city

like philadelphia you know coming from the streets of queens and when i came into the business there wasn't any room for me my dad kind of had a right-hand guy so if i wanted to find something to do other than to just be my dad's kid i had to grow it in a slightly different way and that's definitely caused some pain points and some challenges all that we've been able to work through but certain ways that we were doing things when we were three hotels just don't work when you're 17 hotels so we had to transition that and a lot of those we had to learn the hard way so for the past couple of years we've been really focusing on our systems and our processes and my dad and i actually went to coaching like we have an executive coach that primarily works with me

but part of his role is to help my dad and i work better together and i credit my dad for being way more open-minded to this stuff than i had ever thought and at first he's gonna like slam his fist down say we're not doing this what are you guys crazy and then he evolves and he thinks about it and we end up going down that role and that road and i find that the path to a decision if my dad and i have to make it together might be bumpy it might be very tumultuous but we always end up landing at a good place and probably where our minds were both at at the end of the day there's very many times with my dad and i'll say okay we'll agree to disagree he'll you know that might be said but then he'll end up agreeing with me so it works out well but it it takes a lot of

work as you know you have to be very intentional with it this is one of the the weird dynamics where people haven't ever been in it before it kind of feels like what are they what are you guys talking about but um uh it's natural to have the disagreeableness right because uh you trust the person so much but like not in uh hey this is my business partner like this is my son this is my dad is my brother's whatever um and what i found is that like part of that process of just like knocking heads over and over and over again uh is because you can be so honest with each other like you will definitely say things to your brother your dad your son whatever that you would not say to anyone else uh sometimes good sometimes not um but that disagreeableness almost

is kind of like the iterations that get you to a better decision and so i've noticed that like some of the decisions that we've made literally is the same thing like on first pass it's like oh, this is going to be a blowout fight. And then what you realize is when we get to the end, you're like, I would not have made this decision unilaterally. They would not have made this decision unilaterally, but we ended up here because we kind of had to like fight it out a little bit. And because of that process, we actually end up in a better place. And so it almost makes you like, kind of wish that every business that you were an investor in had some dynamic like that. Now it needs to be respectful. It has to have the long-term trust of

like, you know, you're going to go away. And so I always tell my brothers, like, dude, we can be as mad at each other as we want, we still got to be brothers. Right. And so like we will survive this even if it takes a little while. But that's very admirable because I think oftentimes today and you hear about it, people, you know, just pull the ripcord with their family and they're fine with not speaking to a family member or blowing up a whole relationship over something that happened in business. But if you are both coming from the place where our end state is not just walking away and never speaking to each other, that we need to find a solution. tension that you're describing often results in better decisions and more thoughtful decisions

and by the way like it's sometimes good to have a speed bump because it might make you as the one pushing something more thoughtful more analytical about whatever it is you're doing and maybe you have to make a little presentation or put some more work into it and maybe the first path you thought you were going down is not where you end up it's kind of close but it ends up being better because of that tension and dispute so it's a uh benefit and a curse all at the same time which not many people know so you've got your dad you've got you i don't do you have uh kids uh i have kids okay they are you know i'm you know i don't know how old you we look like the same age right like my kids are five and eight okay if they want to work in the business great i have a powerhouse

wife who runs her own mega business so maybe they go into that maybe they go into my business but but I definitely want to build something that's enduring to last and that could survive with my kids coming in, could survive without them. But what are you doing with them to prepare them? And this is fascinating to me because the joke, especially in the asset management world, is the first generation starts, then the second generation scales, and the third generation gives it all back yeah right and like royally screws it up uh and there's all kinds of theories as to why this happens but like are you guys uh obviously i don't think you're like pushing your kid you're like you know get into the hotel right now and like learn yeah but are there certain things that

you all are trying to do with your kids to kind of just prepare them for what i would think is just like a different life right if they run any business whether it's the businesses that you guys are in or different ones it seems like you need a different skill set and a different kind of approach and mindset is there anything that you guys uh intentionally do there kids are sponges so they're going to absorb everything from their parents the good the bad and the ugly and if you have a mindset where you're focusing on your family and your kids and you're finding a way to work at the same time then i think they're going to see that they also know what business i'm in they know what business my wife's in they like going to hotels so

Now it's basically like bringing them to a construction site or bringing them to a hotel opening, or even better taking them on a great vacation and instilling that passion for hospitality and travel through seeing these great hotels and really opening their mind to travel and being more worldly, but they're five and eight. So it's just a totally different conversation

from some friends of mine who have kids that are in their late twenties, starting to look at coming into the business. maybe that's a third generation business and you have to be really thoughtful about it because if you have multiple brothers and you both own a piece of the business well like how do you deal with that finally dynamic of one kid that just wants to be a shareholder one kid that wants to work in the business so i think you really have to be thoughtful about it and maybe it's not so much the third generation that screws it up maybe it's the first and second generation that didn't

really set the guardrails for that third one to succeed. So that's something that I think about. We have plenty of years to deal with it. But even the transition between my father and I, that has to be very thoughtful as well. So it's first to second to third, equally along the way is something that we definitely think about because you don't want to be in a situation where you have outside shareholders that are making decisions and hurting the business. In some cases, outside shareholders that can't say anything are great

because you don't have to buy them out and they're getting dividends and it's perfect. So you really have to think about what structure will work best. But right now I'm just hanging with the kids and trying to be there all the time and be flexible. I think that's a great way to approach life. Where can we send people to find you on the internet

or find out more about the business? So I started getting really intentional on Twitter, which is kind of fun. I noticed. At Jay Worzak. So I guess you can find me there. Jakeworzak.com. We'll probably have some links to our companies, ways to invest. We've raised over $100 million from high net worth investors. We've partnered with a bunch of private institutions. And I am fascinated with social media and the power of the internet because I think that what you put out, you get back 10 times through new relationships, new friends, maybe new deals, new opportunities, new employees, and the opportunities are endless. So that's really why you see me out there. I think you're doing a great job, and you've got a very unique perspective, I think.

great obviously real estate stuff is different than all the tech stuff but also kind of the hotels and the way that you uh present the information i think people really are enjoying so uh don't stop tweeting i won't um but no thank you so much for your time i've learned a ton today i think a lot of other people will really enjoy this conversation we'll definitely do it again in the future thank you you're the man you're a master