← The Rich Somers Report
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- [00:00]
A
Hey, guys. We are closing on our two most exciting boutique hotel opportunities yet. Catalina island and Bodega Bay, which will make a total of eight boutique hotels for summer's capital. For a last chance opportunity to participate with us before we close, go to summerscapital.com invest. Now let's jump into the show.
- [00:16]
B
You have to wire your brain to start thinking like that is. Like, what is the experience that you can charge people for that they'll appreciate that. They'll leave in the reviews. Like, I love this hotel because I could bring my dog. I love this hotel because my wife and I could. Could grab a drink at the bar. And we were able to spend quality time together without having to go out in the cold and run around random bars to find a place. Right? And so it's like those things that you have to, like, rewire. Your thinking is, like, now you're in the experience game.
- [00:48]
A
All right, guys, today I got someone who owns and controls almost $200 million in real estate, specifically in the hotel space, Brandon Hotels. Boutique hotels. He's doing a little bit of this and that, but we are going to drop a lot of game and a lot of value in the hotel game. I got my man Sujay Meta in the building. Sujay, welcome to the show.
- [01:08]
B
Thank you so much, Rich, man. It's crazy. First time here, dude.
- [01:11]
A
Yeah.
- [01:11]
B
Beautiful studio. I love this.
- [01:12]
A
Appreciate you coming on, man. It's been a long time coming and I know you were at a holiday event a couple years back, but this is the first time we ran a podcast together. We've been talking about this for years, man. So excited that have this conversation with you guys today and more excited for the listeners to experience this with myself.
- [01:27]
B
Yeah, dude, I'm super pumped. And. And you know, hopefully, hopefully we're going to bring the game today.
- [01:31]
A
Oh, we're going to bring the heat, man. So give us a snapshot before we get rolling. What do you currently own today? In the real estate space?
- [01:38]
B
Yeah. No. So in the real estate space, my. My niche is hotels. Okay. So boutique and branded hotels, like you mentioned, as entrepreneurs, like, we're going to get our hands in all kinds of things. So I have some single family stuff. I have some multi family stuff that we've invested in and we control, but really the focus and the niche is hotels and hospitality.
- [01:57]
A
So branded and boutique.
- [01:59]
B
Branded and boutique. Can you.
- [02:00]
A
Can you define the difference between a branded hotel and a boutique hotel?
- [02:03]
B
Yeah, absolutely. So boutique hotels is a. Is a big trigger word right now.
- [02:07]
A
Yes.
- [02:08]
B
Everyone's boutique Boutique hotel.
- [02:11]
A
Most people don't know what it means though.
- [02:12]
B
They don't know what it means. They don't know how to pronounce it. No one knows what it means. Right. But really it's, it's like the sexy thing right now that everyone's trying to get into and a lot of people define it as like this kind of mid scale, you know, it's not too big. Right. Like technically the, the Wynn hotel in Vegas is like an independent boutique hotel. But like no one refers to that as a boutique hotel. Right. So you know, the way I define it is, is kind of that, you know, 40 plus or minus 20 room type box. It's typically limited service with maybe some food and beverage component to it. But the big thing is it's not powered by Hilton Marriott ihe which is Holiday Inns, you know, parent brand or even like some of the, some of the smaller brands like Choice or win them. Right. And you have this like creative ability to do what you want to control the experience. When people come into the hotel, right, with the branded hotels, Marriott, Hilton, Hyatt, they kind of tell you what they want the experience to be. They tell you what the design has to be. And you have very little control over what you can do in the property.
- [03:19]
A
Which, which side do. Because you own both. Yeah, branded and boutique. We only buy and operate boutique where we, we control. And I've never done the branded thing, but I know there's pros and cons of each. But out of curiosity, which one do you prefer?
- [03:32]
B
Yeah, absolutely. I mean that's a loaded question, right? Because it, it really depends on who you are and what your market is. I'm in Ohio, right. And so when I'm focusing and investing in Ohio, no one's coming there to stay at the sujn.
- [03:45]
A
So you need, you need the brands, you need to bring in, the marketing for you.
- [03:49]
B
They are the driver, they are the gener. Exactly. And so they generate so much revenue. And as soon as I'll give you an example, we built a brand new hotel in 2021. It was an IHG hotel. So holiday Inn's parent brand.
- [04:02]
A
Okay.
- [04:03]
B
The day we didn't even know when we would open because it was still Covid time. There were still restrictions on co certificate of occupancy. We didn't know if we were going to open this week or next week. So we weren't, you know, pre leasing or you know, getting the, getting the reservations out yet. Right. And the day we went live it was 3pm By 4pm we already had six reservations. Like that is the power of the brand. Right. You're, you're automatically on all of their engines, you're on all of their branded sites. And as soon as someone's searching know hotels in Columbus, Ohio and they click on ig, my hotel is right there at the top of the list.
- [04:38]
A
Okay. So on the flip side, if you have a beachfront hotel in an area where there's a lot of people want to travel to, maybe it's California coastal, in an area with only five, six other hotels, then the boutique hotel model is going to work a lot better in that area versus some of these middle of the country type of areas. Yeah, it's going to be, Is that accurate?
- [04:56]
B
Yeah, it's going to be huge. Because the traveler, the leisure traveler, the family that wants to create an experience, that wants to take pictures and send it to their family, they want, they, they crave that experience. Right. And that's where hospitality in my opinion, is moving nationally. Right. Like it's moving through to this experiential stay model. And so the boutique hotel is going to be massive, especially in the leisure markets.
- [05:21]
A
Yeah. I mean we're seeing these, the millennials and the Gen Zers even more so really elect to go stay at these like boutique experiences that they can share with their friends on Instagram. I saw like a couple articles a little while back that even said millennials and more. So the Gen Zers are actually would rather like in surveys, would rather forego home ownership in order to be able to take more trips and have more experiences that they can share with their friends and that sort of thing. So they're, they're telling us they value these experiences more than homeownership, which is crazy.
- [05:54]
B
Yeah, we just. Absolutely. And it's a huge shift from the generation before. Yeah, right.
- [05:59]
A
Like the boomer generation, they wanted homes.
- [06:01]
B
Yeah. And when 2008, 2009 happened, the first thing to go is, is leisure travel and vacations. Right. And that's why the hotel and hospitality market took such a big hit in 2008, 2009. But even during COVID like Covid during the shutdown, we hurt. Right. But 2021, 2022, dude, we frickin cranked. Even our like highway hotels absolutely crushed it. Like our Best Western 25 year old properties, we cranked. Right. And so I will, I always say this, like I will take a 2020 over and over again if I can get a 2021 into 2022 to follow for sure. Yeah.
- [06:36]
A
Well, and let's not forget, you know, the Federal Reserve printed a lot of money coming out of the pandemic. Everyone got checks in the mail. And so I think whenever you, you trickle more money into the circulation, you're going to see an increase in adr. You're going to see an uptick in people wanting to travel. And when ADRs go up, RevPAR goes up. And essentially it's going to, you know, improve your bottom line. When the bottom line goes up with the hotel game, which is I think very important. When the re, when the bottom line goes up in the hotel game, you're forcing the appreciation and the value of these assets. Unlike buying a single family Airbnb where those properties are valued based on the comp system. So whatever that house is worth across the street on a price per square foot basis essentially is what your Airbnb is worth regardless of how much income it brings in. But because the hotel is more like a business, the more we can increase the income, the more we can decrease the expenses, the more we can force our appreciation, which is a huge lever. Yeah, gives us more control.
- [07:30]
B
I love that. Because forced appreciation is a, is a word that people try to force into multifamily. Like there's no forced appreciation. Like, yeah, you could do some lipstick and stuff, but it's a one time thing. That's it. You renovated it, you raised rents and that's it. Who are you going to exit to? Right. It's like you can't now, you can't exit to an aspirational buyer. But with hotels there's so many ways to force appreciation. I mean you talked about one is increasing the ADR, increasing the RevPAR. And you could do that so many ways though. You could do that through operations, you could do that through value add, you can do that through branding and social media and you don't have to touch the property physically. You know, like there's so many ways to do it. And so one thing that I always say in like hospitality is that hospitality is real estate plus entrepreneurship. Right. And when you invest in other asset classes, it's, it's passive investing. You know, at the end of the day, like you're, you're, you're a real estate investor, you're not an entrepreneur.
- [08:24]
A
Yes. 100. I'm glad that you brought that up. Like in the hospitality space, unlike investing into self storage, multifamily office, even if you have a long term rental, couple things that the hotel game brings that you can't get in these other asset classes. For one, you get to go visit your hotels at any time and stay at them and see how your money's working for you. You can't do that with multifamily. Okay. The other thing is from a marketing perspective, like the boutique hotel game, because you're redesigning these properties, you're bringing in like fresh furnishing and design and you can really design them to however you want to design them. And that kind of content from a marketing perspective really gets a lot of eyeballs and views on social media. So from a personal branding perspective, a lot more scalable than. Let's just say that we're investing in C class blue workforce housing or apartment buildings. You know, those things, no matter how you renovate them, they're never going to look sexy and get a lot, a lot of eyeballs online. And so the hotel game is very marketable, which I like.
- [09:24]
B
Yeah, slash, it doesn't make sense. Right. It's not like a good financial decision to like put this crazy wallpaper and spend extra money and do these big things. Right. We actually just recently we bought a 120-year-old, like basically abandoned hotel. Um, they actually say it's haunted. So a haunted hotel in North Carolina. And the only reason I, I really like went out of my market to buy this asset is because of the social media aspect of it and the branding aspect of it and what it could do for my personal brand as well as like the levers that we can pull to, to make the hotel successful by, by getting more views. Right. And so yeah, now like now I can say I have a historic hotel, I have a haunted hotel, I have a ghost hotel. All these things are massive clickbait.
- [10:10]
A
So let's break down that hotel. I actually have a couple multifamily deals that we still own today. The Arborist townhomes in Greensboro, North Carolina and Timber Creek Apartments, garden style, 145 unit building also in Greensboro, North Carolina. I got partners, I got, we got investors on those deals. Both of those, we still own them today. So I know the Greensboro market. You bought a boutique hotel that we're alluding to right now. Historic building, boutique, independently ran. It's non branded in the downtown Greensboro area.
- [10:37]
B
Yep.
- [10:37]
A
Break this hotel down. How much did you buy it for? What do you like about it? What are some of the levers that you guys are going to pull to add a lot of value? And by the way, a big shout out to our guy Owen. Yeah, Owen is in our hotel community. Bought that deal with yourself and you know, I think it's A really, really cool and unique opportunity. But break the deal down.
- [10:54]
B
Yeah, absolutely. So, like I mentioned, 120 year old hotel, haunted hotel, downtown Greensboro. Right. The value of the hotel came from the real estate value. There was no value that came from it as an operating business.
- [11:08]
A
How much did you guys buy for?
- [11:09]
B
And so we bought it for 1.95 million.
- [11:11]
A
How much, how many rooms?
- [11:13]
B
20. It was 22 rooms when we bought it. We're going to turn it into 26 rooms. So we'll call it 26 rooms, 1.95.
- [11:20]
A
So it's 50k door.
- [11:21]
B
Yeah, but we're going to put about 100.
- [11:24]
A
I'm sorry, just under 80, 90k. My math is all over the place.
- [11:28]
B
It's all good.
- [11:28]
A
Dude, give me a calculator.
- [11:29]
B
We're doing so many numbers right in our head all the time, but we're going to put another 1.5 into it in renovations. Right? And so we're going to renovate it. There's some contingency there, there's some other upgrades that we're going to have to do. But the kicker here with these boutique hospitality assets is you can leverage both bank funding as well as seller financing. So we got a couple hundred grand from the sellers. 400,000 to be exact. The rest of it we're getting from the bank. And then we raised about 1.3 million from investors. We raised 1.3, 1.3 million in eight days with one Instagram story.
- [12:06]
A
Damn, killer, dude. You said one Instagram story and raised how much?
- [12:10]
B
1.3 million. Yeah, and we, we have a wait list. We have a wait list of people who wanted to come in. We had one big check writer. He wrote about $800,000 check. He was originally coming in for 200,000. We went over the deal with him, we explained to him the deal and he's like, yo, I'm all in. And he threw the bag, right? And so, you know, we have the support of these investors and now we're really able to like focus on renovation, repositioning it. And the cool thing is, you know, while putting it on Instagram, while putting the stories, we have the entire community who's like, dude, we can't wait to see this thing come back in the market and give it life again, right? So there's like people locally that are supporting us, cheering for us, and they're already like dming us is like, when are you guys going to be open? I want to, I want to book the whole thing out.
- [12:57]
A
So give us an idea for listeners out There, you know, I want to, I want to give the people idea of like what kind of value you can add to these, these properties. So you bought it for just under 2 mil. What was the purchase price again?
- [13:07]
B
Yeah, 1.95.
- [13:08]
A
1.95. Okay. How much are you going to put into it? And then what is the, what is this thing going to be worth once you're done?
- [13:14]
B
Yeah, our all in basis is going to be about 3.3 million.
- [13:19]
A
Are putting in a lot of work?
- [13:20]
B
Yeah, yeah.
- [13:22]
A
Full rental inside and out.
- [13:24]
B
Yeah, 26 rooms, um, outside where we actually can't touch because it's a historic building. Right. So the exterior facade, which is all brick, it's beautiful. We're going to leave it as is, but the inside we're going to, I mean every room is going to be an experience. We're actually custom making the furniture from China. My architect lives in San Diego, so she's a partner on the deal. She's an architect designer and she created, she personally created the furniture that's going to go into the room where we're having it manufactured in China. So every room is going to be an experience. Right. We're adding a lobby bar, there's about a 2,000 square foot basement that we can make into a spa. So we're going to do a lot of these things and I think, you know, once all of the value is there and we get it stabilized, the value is going to be around $5 million for this property. Right. And so if you think about it, the investment is 1.3. Right. Once we, if we have $2 million in debt total, Right. And now all of a sudden we can sell it for five. Right. We pay off the debt $2 million. We have $3 million that's returned to the investors. That's almost a 3X return. Right.
- [14:31]
A
That's big, right?
- [14:32]
B
In just five years.
- [14:33]
A
That's big. So you know, what are some of the other levers that, that we can pull here? Getting into the boutique hotel game. I'll give you an example. Because there's a lot, right. So for example, you know, we've implemented an AI concierge. A lot of these hotels we got early check in fee, late checkout fee. A lot of these folks, they, they're, they need to check out late. Maybe they're, they're checking out at 11 o', clock, but their flight's not till 5pm, right. And so they want a late checkout. So people are more than willing to pay for that stuff. So you might as well Capture it. They're expecting to pay a late checkout fee for that kind of stuff and then pet fees. You know, a lot of our hotels were charging, you know, 75 bucks for pets. And one of our hotels up in Bodega Bay, we're averaging about $6,500 a month in just pet fees.
- [15:14]
B
That's crazy.
- [15:14]
A
You know, you take that over the course of 12 months, that's a lot of money to the bottom line. And you know, do the math. Let's just, let's just break out the math real quick, you know, 6, 500amonth. How many rooms to the bottom line? That's 44 rooms.
- [15:27]
B
Okay.
- [15:27]
A
But 6, 500amonth times 12. You know, we don't really have any sort of overhead to, to accommodate for the, the pets other than, you know, some trash bags to pick up the poop and that sort of thing.
- [15:40]
B
80K, right?
- [15:41]
A
78, 000 a year.
- [15:42]
B
Yeah.
- [15:42]
A
Right. And so now let's just call this hotel is on the water. So let's just say it's going to trade a six and a half cap. Right? We're looking at $1.2 million in value right there.
- [15:54]
B
That's crazy. And so that's forced appreciation.
- [15:56]
A
That's forced appreciation. And so once you understand this model of how these things are valued, it's very hard to go back and do a single family Airbnb property, which is why I'm very bullish on the boutique hotel game. But Suj, what are some of these other levers that, that we can pull in the hotel game?
- [16:11]
B
Yeah, I mean, first, the, the pet fee is, is number one. Right. Like, that's great. Pets. You just got a dog, didn't you?
- [16:17]
A
We just got a eight week old golden doodle.
- [16:20]
B
That's amazing.
- [16:20]
A
Her name is Catalina. Catalina, my girlfriend. I love going we. My girlfriend and I love going to Catalina. She was eight weeks. My God, her, she's nine weeks now. So we call her Alina for short. But dude, she is so freaking well behaved, man. Like, talk about an easy dog to train. She's already like potty trained. She literally hasn't had one accident.
- [16:38]
B
Yeah.
- [16:39]
A
She's now sleeping throughout the entire night, seven hours without crying, anything like that. And she knows how to sit down, she knows how to go to her bed. Like all this stuff. Like it's been the dream pet. These Golden Dudos are great, man.
- [16:51]
B
You guys see how Rich talks about his pet? Like, that's how I talk about my son. Right. And so, but, but my point is she's part of, Lena's part of your family.
- [17:00]
A
Dude, you love, she's, she's our daughter.
- [17:02]
B
You love her. You know what I mean? And if you can go on a trip with her and it's a hundred bucks to have her in your room on this trip, you're gonna pay it.
- [17:11]
A
Oh, you're gonna pay.
- [17:12]
B
I mean, yeah, I'm buying like five dollar little pouches for, for my son who's like snacking on these five dollar pouches ever like three times, four times a day. But I don't care, I don't care about the money because it's my son.
- [17:22]
A
And if there was a cool hotel that had like a really, really like dope thing set up for dogs.
- [17:28]
B
Yeah.
- [17:28]
A
We would pay extra for that. Yeah.
- [17:30]
B
And you, you'd make that trip just to go there with your dog, which
- [17:33]
A
is, you know, with your son. And that's the same thing. Same reason why people pay up to go to like Legoland or stay at hotels that have kid friendly amenities. So same thing. It's, it's unconditional love.
- [17:41]
B
Exactly. And so you have to, you have to wire your brain to start thinking like that is like what is the experience that you can charge people for that they'll appreciate that. They'll leave in the reviews like I love this hotel because I could bring my dog. How I love this hotel because my wife and I could, could grab a drink at the bar and we were able to spend quality time together without having to go out in the cold and run around random bars to find a place. Right? And so it's like those things that you have to like rewire. Your thinking is like now you're in the experience game, right. And once you start doing that, it will automatically come based on your market. So one thing that we're doing in Greensboro is we're creating a private member social club, right. Because it's in downtown. These, you know, these rich people, you know, who are, who are working, they want to do meetings, they entrepreneurs, they want to meet with people, they want to have a place where they can call their own. And so in the basement we want to create this private member social club which we're going to charge a two thousand dollar fee for, right. It's like a one time membership and then a 200amonth minimum spend at the hotel. So you could use the spa, you get some drinks. But, but it's $200 minimum that we're going to guarantee now. You know, if they're out of town for a month, like it doesn't matter. It's going to charge them 200 bucks, right. So it's going to be ancillary revenue like you mentioned. But now all of a sudden, for a measly couple grand a year, they can have meetings, they can, you know, when they have friends in town, they can, they can kind of come in at midnight and even when they're going out and then, you know, they just want a place where they can chill, relax, they can woo people there. Like, it's going to be a beautiful.
- [19:15]
A
I like that. And that's you guys thinking outside the box with that, which I love. And it's a perfect example of like with the hotel game. Like it's not a one size fits all. Like there's no, there's no like one way to do it. You can come up with any creative idea that you think is going to work for your asset in your market and then roll it out and test it.
- [19:33]
B
Yeah.
- [19:33]
A
And I'm sure you guys are going to roll this thing out and if it goes well, you're going to lean into it. And if you notice a pattern where people are like, you know, liking the services this way, then you'll probably lean in that way. Right.
- [19:44]
B
The big thing though, that I, I will say for everyone to focus on, people hate hidden fees. So I always, I always stay away from hidden fees because, yeah, you might make a couple hundred bucks, but it's going to come back as like a negative review is like I was promised a room for this much or this is what I booked for and all of a sudden the price is 50 bucks more.
- [20:03]
A
So what are your thoughts on? Because, you know, obviously a lot of these hotels now have some sort of amenity fee, resort fee. What are your thoughts on that? Assuming that it's exploit, it's disclosed up front.
- [20:14]
B
Yeah, I mean that's the primary thing is like it has to be disclosed up front even in the booking channels. Like I always say, like it should say the total for your stay is going to be this much. Right. And I think resort fee and amenity fee, people are like kind of started to, to understand and they're expecting it at a lot of these boutique type things. But now if you're going to add like a green fee, like now there's like, if you do pace financing, you're actually able to pass on your financing fee as like a green tax at the end.
- [20:43]
A
I, my girlfriend, I stayed at. No, we didn't stay there, but we went to the Hotel Dell here in Coronado. Yeah, probably San Diego's most historic hotel right on the water. But Blackstone just bought it a couple of years ago. They did a $500 million Renault. They just refi the asset and appraised that 1.7 billion with the B. But anyhow, they do gorgeous asset right on the water. If any of you guys listen to this, ever come to San Diego to vacation with your family, go stay there. It's sick. But anyways, they do ice skating every single December right in front of the Hotel Dell on the beach, which is pretty cool.
- [21:16]
B
Yeah.
- [21:16]
A
So we were out there grabbing a bite at the hotel bar, and when you go to close out, they got on the receipt the very bottom. I forgot what they called this, but it was some sort of fee and it was like an add on to like the food and beverage. And I asked the bartender, I said, just out of curiosity, what is this fee? And I was curious because I'm just, you know, I like, when I stay at hotels, I like to see like, how do people operate? What are the hidden fees? And so he said, it's a, it's a, it's a fee to the guests that goes towards Blackstone's renovation. And they called it like a historic renovation fee. Wow. And so I was like, damn, that's so sly. Like, if people that are just getting food in bed, that aren't even staying at the hotel, they're paying towards the renovation. So yeah, I think my point is, is like today I feel like most guests are expecting to pay some sort of fee.
- [22:04]
B
Yeah.
- [22:05]
A
When they go places. And so I thought that was very interest that Blackstone's doing that.
- [22:08]
B
Yeah, but you remember that, right? And you don't remember it in like a positive light. You remember it in like a slightly, I mean, I mean, whatever. Like you're like, whatever, I'll pay the fee. It's not a big deal. You're not going to make a big deal out of it. But like, for example, just this weekend we were in Austin, we stayed at a hotel. It's actually a Marriott hotel. It was the W in Austin. And you know, we had an early flight, so we wanted, for my baby, we wanted food in the morning. Right. Because they eat breakfast. My wife and I, we can go and get fast food, whatever. But we wanted something fresh cooked for, for our baby. So we wanted to order room service. Now there's a 25% service fee, a six dollar minimum order fee and all these things. And we ordered the food. We didn't even get the food in time before we had to leave. So we just left without the food. And, and now I'm like, I'm kind of like, man, the hotel was beautiful, the stay was great. But when I left, I had that kind of bad taste in my mouth. And it's, you know, you got to think you're in the experience game. Right. Like, you know, I'm not going to go out of my way and put a review. But, but if I were one of those people, like, I'd give it a four star instead of a five just because of that. Right. And so that's how we have to like rewire our thinking. And especially if you're in the hotel game, you got to think like an investor. Right. So yeah, that's, I mean, that's my take on these fees. But you know, we're going to do a spa, so you know, we're going to do spa fee.
- [23:31]
A
Okay, so you will have a fee at this hotel.
- [23:33]
B
We will, we will.
- [23:34]
A
In all your other branded hotels, do you guys have some sort of amenity or resort fee?
- [23:38]
B
Not at a lot of them. Especially the branded ones. Right. We don't have the flexibility at the branded hotels.
- [23:43]
A
They won't allow you to do that with.
- [23:44]
B
No, no. Especially the cookie cutter ones. Right. Like, so, like the Hampton Inns. Got it. The home to suites.
- [23:50]
A
So the soft brands will allow it.
- [23:51]
B
The soft brands, you can get away with amenity fees, resort fees, things break down.
- [23:55]
A
What's the difference between a. Some of these more standard brands in a soft brand?
- [23:59]
B
Yeah. So one big major shift, and I was going to say this be in the beginning when you asked me that first question, one big shift that I see Hilton and Marriott taking now is I think they're understanding that nationally the hospitality industry is shifting towards more experiential stays. You know, people don't just want a cookie cutter room. Right. That's the same like you're sitting at a Hampton Inn in San Diego or in a random town in Ohio. It's the same experience.
- [24:27]
A
Yeah.
- [24:27]
B
That's not what you want. Right.
- [24:29]
A
And so they're seeing the trends too.
- [24:31]
B
Yeah. And so they're buying these, these hotels that are, you know, like even these micro resorts, they're buying into these experiences and they're calling it a soft brand. Right.
- [24:42]
A
And so, so, so guests that stay there, they don't know it's a Hyatt or a myriad.
- [24:45]
B
Yeah.
- [24:46]
A
And it has this cool vibey name and it feels independent of boutique, but it's really ownership of. Of Hyatt. Right.
- [24:51]
B
Or franchise.
- [24:52]
A
Or franchise.
- [24:53]
B
Franchise. So someone else may own it, but it's on the booking channel. Yeah, right. You can use your points, you can get points by staying there and that's a big thing. Status is huge. Like, you know, I especially because I'm an owner, I get all the highest statuses at Marriott Hilton. And if it feels good when I check into a Marriott, it doesn't matter what book I room or what room I book, but the first thing when I check in is like, hey, you know, Mr. Meta, thank you so much for being an elite, you know, member. Let us, let us see what upgrades we have available for you. Oh by the way, we have this gift for you. Oh by the way, you get $50 at the hotel to spend on whatever you want.
- [25:30]
A
It's like, it's a feel good, you feel valued. It's like when I walk into a restaurant, for me one of the most important things is like the service, how do people talk to you, treat you? Especially if it's like, if you're a repeat customer, right. It's great when you know the host, knows you by name, they walk you up, they give you the best seat at the, in the restaurant, even though they're like completely sold out because you're a regular and then everyone knows your order, they treat you a first name and then you're bringing clients up and they're like, damn, like this is like, this is a VIP experience. Yeah, same thing with checking into a hotel. When you have the status, the way you're treated is like a VIP experience. I like that stuff. Yeah. And it's huge.
- [26:04]
B
You don't have to know their name, you just have to be able to see, hey, they're titanium elite, right? And you just got to. Or they're a diamond if you're at Hilton, right. And now all of a sudden it makes it easier to recognize the guest and to make them feel good. Right? But so going back to your question about the soft brands, right? So what Hilton, Marriott, Hyatt, all these brands are doing is they're taking these boutique type assets and they're adding it to this collection of soft branded assets that they have. So Marriott calls it the autograph collection. And most people don't know this, but the Bellagio, for example, the Bellagio is under the Marriott flag now, right? The, the Venetian in, on the Strip in Vegas, that's an IHG hotel. So like Holiday Inns brand, right? So like even these big box hotels are now being, you know, brought into Hilton and Marriott's reservation system. The big difference though, is you don't pay as high of a royalty fee when you're a soft brand under the Hilton or the Marriott reservation system.
- [26:59]
A
Yeah, that's big. That's big.
- [27:01]
B
Yeah.
- [27:02]
A
So break this down because I think it's a misconception for most people. They think because it's Marriott, a Hilton, a Hyatt, that all these Hyatts are owned by the Hyatt. But in all reality, these are all owned by either individual investors or like institutions or like capital groups. Can you break that down?
- [27:21]
B
Yeah, absolutely. So you, most people think Paris Hilton owns all the Hilton hotels, Right? But that's, that's definitely not the case. It started out that way, Right. It started out that Hilton had their own hotels. They started this brand, they started to grow, but then they shifted to this franchisee model. And so still Hilton will own and operate a few hotels, but not all of them.
- [27:39]
A
And so like less than 10%.
- [27:41]
B
I don't know the exact statistics on it, but yeah, it's not a lot. And you know, people like me who are franchisees, what we'll do is we'll either develop a hotel or buy a hotel and we will buy into the, the franchise rights or the license of the hotel. So, you know, I have, for example, I have a Hampton Inn, right. Hampton is a Hilton branded hotel. I own the real estate, I own the liability. I have the loan on my name. The operation is purely my liability. Like I have to make sure that I make payroll and all those things. Right. But Hilton or Marriott will take somewhere between 10 to 15% of my gross receipts every single month as a fee to be able to use their name on the top of my building.
- [28:29]
A
And what is the typical franchise fee for most, Most of these big.
- [28:32]
B
Yeah, 10 to 15%.
- [28:33]
A
10 to 15, yeah.
- [28:34]
B
And it will depend on what the revenue is right now.
- [28:37]
A
Do they charge you an extra commission for any bookings they give you?
- [28:41]
B
Yeah. So the way that 10 to 15% is broken down is a part of it is royalty. So a part of it is based on your revenue purely. But then the rest of the fees is, you know, like a marketing fee which is set per month. There could be a technology fee which is per key. So it's like $3 per key per month, regardless of what the revenue is going to be. Right. So that's why there's that range of like 10 to 15%. The higher the revenue kind of, you know, the lower that that fee is, it goes closer to like that 10%. The lower your revenue, it's going to Be closer to like 15 because you have those constant costs.
- [29:16]
A
Now with the soft brand, that's a way to get in and get some exposure, get some visibility and some bookings and a little bit more flexibility. Now with the fee, it's typically a little bit lower, right?
- [29:25]
B
Yeah. Like 7 to 10 or 6 to 7 to 10. Yeah, 6 to 10. So because you're still getting all the loyalty, you're still showing up on Marriott.com so now if you're in a, if you're in a location where you may not get as much exposure, right. There's only a few hotels there. People aren't necessarily thinking of it as a destination that they would normally Google and be like, hey, you know, hotels in this town. Then it might make sense to soft brand it to now be able to get more heads in the beds. Right. Even though you're going to lose a little bit of that booking, it's like being on OTAs, right? It's, it's, I mean, 15% to be on Expedia versus 7% to be on Marriott dot com.
- [30:01]
A
Yeah, no, that's big. Okay, so do you, do you know the story behind this? I want to ask you about it. So this is, this is crazy and I think most people listening to this probably don't know this stat, but 60% of all the hotels in America are owned by the last name the family Patel.
- [30:20]
B
The Patel cartel, dude.
- [30:21]
A
60% of all the hotels in America are owned by this family or last name Patel. Break that down. Yeah, so what's the history behind that?
- [30:28]
B
So Patel, it's actually hilarious, cuz. You know, my wife was a Patel before we got married. Now she's a meta. But, and she's actually, she's a doctor. And I was trying to be a doctor.
- [30:39]
A
You guys own hotels, buying the hotels
- [30:40]
B
that you should have been buying, right? But, but she's, she's so far removed from the hotel game. Yeah, there's a, there's a certain region in India on the western part of India where the state is called Gujarat. But a lot of the people from that area, they have this last name Patel. Right? And it's, it, it's kind of like the Smiths, right, Or the Jones in America. And so there's a, there's a large group of people with this common last name. Now they came to America as immigrants trying to figure out what to do. Right? And so a lot of the Patel family, what they did was they bought these motels, they lived in the motels, they cleaned the motels, they Checked in the people, they did the maintenance all themselves. And then they sponsored their community members, their family members from India, help them get up on their feet, get them into other motel properties, maybe in another town or maybe in another state. And slowly, slowly this, this group or this community really started taking over, like the motels now as that first generation.
- [31:44]
A
And what, real quick, just for context, what generation? Like what time frame is this?
- [31:47]
B
Yeah, probably around like the 80s, right? 70s. 80s.
- [31:50]
A
Really? This is not even that long ago.
- [31:51]
B
No, no, not at all. Yeah.
- [31:53]
A
And they're using it for long term.
- [31:54]
B
Yeah, they, I mean, they, I mean, it's cash cows, right? Like motels, we know, like Motel Sixes. People are like, oh, I want the prettiest, like nicest, coolest. Like, you know, like your hotels are fricking beautiful. They're on the water, the ocean.
- [32:07]
A
Thank you, Tulum.
- [32:09]
B
But, but sometimes it's like, it's, they crank.
- [32:13]
A
Yeah.
- [32:14]
B
You know, you're making crazy money. They cash flow, like nuts. It's cash payments. You don't take credit cards and you're, you're, you're cranking. Right? And so these highway properties, one of my best investments is a best Western off of Highway 70. And we absolutely crank there. It's a 25 year old asset, 75 keys. It's not the prettiest. It doesn't have an Instagrammable lobby, no oceanfront, no water views, but it cranks, right? And so this family or this community, they came to America, they started buying up these motels, they started cranking and now they, now they have cash flow, now they have money.
- [32:52]
A
Right?
- [32:52]
B
What are you going to do? Right? These guys are entrepreneurs and so they started investing in more and more. And then came the second generation, right?
- [33:00]
A
Like the second generation of Patel.
- [33:02]
B
So, no. So these Patel kids. The kids, yeah.
- [33:05]
A
Yeah. Okay.
- [33:05]
B
So the kids are like, hey, we, now we've, we've learned, we've gone to school, Western education, you know, they had money to go to college. They're learning, you know, how to, you know, for example, like syndications and all these other new concepts that their parents weren't familiar with. Right? And, and honestly, like, even my dad, my dad had, you know, a couple choice products. We had one motel in a Day's Inn. My dad like busted his butt, dude. Every single day my parents came with $20 in their pocket to America. He used to sell bags, paper products to grocery stores. He would import from China and, you know, buy them for 10 bucks, sell them for 12. And I would sit in the back of the van with my dad. I'd sit on boxes because we took all the seats out of the van and we. He'd go hustle like that, right? He ended up going and selling to these motels, right. He sold tissues, paper plates, things like that. And one guy was like, hey, you work too hard. Let me help you. Let me owner finance both these hotels. I want to retire. You take over. My dad did it. He took a leap of faith. He took a risk. And I'm second generation, right. Like, I learned from my dad as a mentor.
- [34:16]
A
Right.
- [34:17]
B
You have a mentorship program. Have a mentorship program. A lot of people have. But like, my dad was the OG mentor. He was my master.
- [34:23]
A
That's pretty dope. That's.
- [34:24]
B
He was my mastermind for me.
- [34:25]
A
Yeah, it's. It's funny with the Patel thing now, thinking about it, six of the hotels that we've bought, the seller was last name Patel.
- [34:34]
B
Patel.
- [34:34]
A
Not.
- [34:34]
B
Not.
- [34:34]
A
Because out of the six hotels we bought two of those six hotels, the last name was Patel.
- [34:39]
B
Yeah.
- [34:39]
A
The sellers.
- [34:40]
B
And did they. Did they own. Live in the hotel, working them?
- [34:42]
A
So one, one of them was a. Was a family. So it was Hotel Dega. It was built in 1988. The. It had never traded until we acquired it a couple years ago. But the father had passed away a few years ago. The son took it over and he had poor management. Place didn't want to deal with it anymore and so decided he want to sell it. But big family and he didn't. He didn't want the family to know it was being sold. So I had the broker kind of shop at low key, off market.
- [35:06]
B
Yeah.
- [35:06]
A
And that was that one. The other one, I don't know too much about the ownership group there. I know they own some other hotels, but this one they just wanted to get rid of and we ended up acquiring that one. A surf break hotel up in San Clemente.
- [35:18]
B
Yeah.
- [35:18]
A
They'd own it for a few years and. And they just, they didn't want it anymore. So we're like, hey, good location, good looking asset, let's pick it up. But yeah, it's funny, two out of the six hotels that we own, we bought from the Patel family.
- [35:30]
B
Yeah. And that's going to change, though, in the next 10 years.
- [35:33]
A
Why do you think that? Because it's all these Airbnb investors getting into the game.
- [35:37]
B
Exactly. And it's, it's now, it's now the hot thing to do. Right. Because now you have experience. You could flex it, dude. Before, like, I fought getting into hospitality. I didn't want to do it because, like, I didn't just want to be another Indian kid in the. Working in the hotels, you know, But I, I decided that, hey, I want to do it differently. I want to, I want to build a business, not work in the business like you talked about earlier.
- [35:59]
A
Question for you. Do you feel like a lot of these hotels that you would buy from, the last name Patel, are generally speaking, going to be new, modern and like all renovated? Or would you say, generally speaking, likely going to be a little bit more tired with some deferred maintenance and ability to come in and pull some levers for some appreciation via value add?
- [36:21]
B
Yeah, 80% of the acquisitions I did were from Patels. And you know, it was actually second generation Patels, though. So, you know, they're like younger educated, all of those. And so all the assets that we're buying there was some sort of renovation component because that's a trigger to sell. Right. Is like when it comes time for pips, we call it in our branded space, we call them pips. Right. So property improvement plan. Nobody wants to do the renovation.
- [36:48]
A
If you're going to get rid of that.
- [36:49]
B
Yeah, there's like, dude, let's just, let's get rid of it. We've had it for 10 years. We've built equity. We could get a little bit of money on top appreciation, we've cash flowed for years, and let's flip it into a bigger asset. Right. And so a lot of the people that we bought from, their exit strategy was, hey, let's sell it. Let's 1031 into a bigger property, you know, and they've scaled because their families have been in the industry for 40 years. And so now they're, they're getting rid of their $2 million revenue properties and going into the four or six million dollars revenue properties. Right. And so, you know, but again, a lot of our strategy was like, hey, we can come in, we could do this light Reno. Right. $1 million Renault for a $10 million purchase. 10% and we can. It's going to be stabilized for the next 10 years and we can cash flow the hell out of it.
- [37:36]
A
That's pretty cool. So the takeaway is, you know, today 60% of the hotels are owned by the last name Patel.
- [37:42]
B
Yeah.
- [37:43]
A
But in, in 10 years, with all these Airme, Airbnb investors getting in the game, by the way, there's 8 million Airbnb listings in the world right now. And as Airbnb continues to go away, where I at least get Regulated in a lot of markets is bringing a lot of demand to the hotels. And so I think that number might start coming down. Oh yeah, you know, in 10 years it might be closer to like a 50%, 45.
- [38:03]
B
Oh, 100%. Yeah, 100%.
- [38:05]
A
So you said one of your best performing cash flowing hotels is a Best Western? 72 keys on the side of the road.
- [38:11]
B
Yeah, 75.
- [38:12]
A
Okay, 75 keys. Break this, break this deal down. Where is it?
- [38:16]
B
Yeah, so it's in, it's in a town called Zanesville, Ohio.
- [38:19]
A
Okay, where the hell is that?
- [38:20]
B
Oh, I had, I'm an hour away from this town and never heard of it.
- [38:23]
A
Who's going to Zanesville?
- [38:24]
B
Born and raised in Columbus.
- [38:25]
A
Yeah. Who's. Who's going to Zanesville to stay at this hotel?
- [38:28]
B
So off of Highway 70, right. So a lot of travelers. And I 70 goes Chicago to New York. Right. And it goes further west, but those are the two major cities. Ohio comes right in between. So a lot of travelers going back and forth, A lot of truck drivers. So CLC. I don't know if you guys accept CLC. So CLC, a lot of trucking business. Right.
- [38:48]
A
And so CLC that connects Highway 70 connects which cities?
- [38:52]
B
It goes from New York to Chicago.
- [38:53]
A
Okay, got it.
- [38:54]
B
So New York City, Chicago. Right. You can go all the way across.
- [38:57]
A
Yeah. So clc.
- [38:58]
B
Yeah. So a lot of truck drivers, a lot of construction people, a lot of travelers just, just going and needing a place in between. Eight hour drive, take a break in Ohio and then another six, seven hours to Chicago. Right. So you get a lot of travelers on top of that, you get a lot of fracking. So oil and gas workers. There's a small town there, so you get a lot of community events, tournaments, sports tournaments. The regatta happens there every year. So there's a good base business. Right. Again, it's not downtown San Diego, but it's also not downtown San Diego in terms of the compression. Right.
- [39:35]
A
And you don't have all this, all these other hotels you got to compete with?
- [39:37]
B
No, we have a lot of these
- [39:39]
A
folks are just one night.
- [39:41]
B
Yeah. One construction will, will stay long time. Or it's like a corporate account.
- [39:45]
A
Okay.
- [39:46]
B
Right, so we'll have corporate accounts.
- [39:47]
A
What kind of adrs do you push there?
- [39:48]
B
So we have like an, right now we have like an 80, $83 ADR. So remember, we're in Ohio, not in California, so that's not terrible.
- [39:56]
A
Also you probably bought this asset at a, at a very low cost basis, a relative in a higher cap rate than Relative to somebody's coastal stuff.
- [40:04]
B
Right? Yeah. So let me break it down.
- [40:05]
A
That allows you to cash flow.
- [40:06]
B
So 1.5 million in revenue when I bought it. 1.45.
- [40:09]
A
Yeah.
- [40:09]
B
In revenue, I bought it for 4.65 million. Right. So just over like three and a half times in revenue. Right. It did about.
- [40:18]
A
And this is less than 100 a door, about 65 a door.
- [40:21]
B
Yeah, yeah, yeah. And it's an old 75 year old, but it was renovated just a few years before. Right. And it cash flowed about, I want to say like 500,000 in cash flow, like EBITDA. Right. So before I pay off like debt service, all that stuff.
- [40:37]
A
Yeah.
- [40:37]
B
Before that, like 4 or 5. 4, 500,000. Right. And so, you know, it's. It's over a 10 cap or right around a 10 cap. In terms of what do you think it's worth today? I took the revenue from 1.45 to 1.9. Right. And in.
- [40:51]
A
How'd you do that?
- [40:52]
B
So we focused on customer service. Right. The owner was an absentee owner, so he split his time in India and America and he wasn't really dialed in there. So he had multiple staff as well, and layers. And so, you know what happens is it's good to have a general manager and an AGM and all these, you know, the hierarchy of the staff and the chain of command. But what happens is the accountability gets lost because it's like, oh, they were supposed to do that. Oh, they were supposed to do that. It's like, no, I want one manager at this 75 key property. I don't need more. Right. And so we leaned out the operation, so now we're cash flowing better. Right. And then we dialed in on sales. We got a couple big corporate accounts. Um, we worked on the guest service scores, and then things just started trickling in. Right. So over 18 months, we got the revenue up $400,000. And we leaned out the operations. And so small things. It's very small things. Right. And so bagels, where you're buying the bagels from. If I could set, I could save 25 cents a bagel. And I'm giving out 20,000 bagels a year. That's $5,000 profit. Right.
- [41:59]
A
How do you lean out the staff?
- [42:01]
B
So we took away kind of redundant positions. So for example, at a lot of larger hotels, we have a houseman position. Right. So the. How. I don't know. Do you guys have housemen?
- [42:11]
A
No.
- [42:12]
B
So houseman's are supposed to like, come and clean the lobby, take care of the hallways, you know, breakfast area. After breakfast time, they're just cleaning. They're taking out the trash, doing these things, right? So I took all these tasks and I gave it. Maintenance guy now takes out the trash, right. The front desk is expected to clean the lobby. When they're not dealing with the guests, they have to. Each shift has to clean the public restroom. One time, my head housekeeper or my housekeeping supervisor has to clean the hallways. So it's like I gave away those tasks for sure.
- [42:45]
A
And even the front desk at night, like on a weekday, they could. They could do a little laundry too.
- [42:49]
B
Exactly.
- [42:49]
A
Yeah.
- [42:50]
B
Right. And so, yeah, so the laundry, and even laundry was coming in at like 7am why the heck does laundry needs come in at 7am Guests haven't even checked out yet. Right? Like, how does that make any sense? Housekeeping hasn't gone and stripped the rooms. So it's like those small things that like, you have to just. It's easy stuff. Like this stuff's not rocket science to get into hotels, but you just got to break it down. And it's like, hey, let's have the laundry person come in at 10, right? That gives the housekeeping staff enough time to go strip the rooms. People are starting to check out now. They have something to do, you know, right. When they get there, they can help with breakfast, a couple of things like that, right? So you cut out those couple hours in the morning, and that's how you lean out the staff. It's both in hours and in like, redundancy in staff, right? So now all of a sudden, like you did the math earlier is like, that all adds cash flow. Cash flow adds value. And I think today, honestly, I could sell the property for $7 million.
- [43:42]
A
Damn. Let's go.
- [43:43]
B
It's huge. And. And we've been cash flowing every single year since. So, like, I've already. We've already made our money back, right? And you know, now I'll have a renovation, investing back into the property. But it's things like this.
- [43:54]
A
I'm curious how you guys are because, you know, a lot of the smaller hotels are limited service. Let's just. Let's just face very limited service, which there's a lot of pros of that, right? Because, you know, it's a little bit less headaches. But for these limited service hotels, what's a way to kind of create some sort of food and bev component?
- [44:11]
B
Yeah. First question is, do you want that? Right. Like, because, like, F and B is a pain in the butt to manage, right? Like it's like, if you don't have a restaurant and you're still cranking, like there's other ways to make money. It's like, why are you adding. You know, now you need a cook. You know, the margins on food are low. The margins on cocktail drinks are high though. You know, 50 to 70% on cocktail drinks. Right. So like, maybe instead of having like F and B, just have B. Right. Like just do the bar.
- [44:38]
A
Yeah.
- [44:38]
B
Do the cocktail.
- [44:39]
A
And a little bit of snack. Especially when you're a hotcorn.
- [44:41]
B
Exactly, yeah. Um, and so that's what we're doing in like, especially this, like this property, for example, that's like in the middle of nowhere. Kind of like there's not a ton of restaurants that they can go to late at night. Some construction workers are coming in late at night. So we're, we're actually like, I'm looking into experimenting with, you know, like, there's all these like crazy 3D vending machines. Now, I call it 3D because I don't even know what they're called. But like you can get a hot White Castle slider from this machine. You just put the ingredients in and it makes you a pizza, or it makes you a sandwich, or it makes you a slider. Now the caveat to that is like, I want to make sure we're not wasting supplies. Like, you know, we're buying all this stuff. It's not getting used, it's going bad. Because these are perishable items. Right. But you can also experiment with stuff like that where I don't need more staff to be able to do this. I just need, you know, in the morning, our breakfast person can make sure, you know, there's, there's enough food inside of this vending machine. But at know 1am someone comes in not thinking straight and now they're ordering five pizzas. Like that's money in the bank.
- [45:42]
A
100%.
- [45:42]
B
You can experiment with that. We have a marketplace at a lot of our hotels.
- [45:46]
A
No, that's kind of cool.
- [45:47]
B
And the marketplace generates, you know, 1500 bucks a month.
- [45:50]
A
And that's like a third party operator that comes in and operates it.
- [45:53]
B
No, it's. It's our front desk. So it's a marketplace. It's like a shelf with candy, essentials, drinks, you know, Advil, all those kinds of popcorn like you.
- [46:02]
A
And who does the restocking of all that?
- [46:04]
B
Front desk.
- [46:05]
A
Okay.
- [46:05]
B
Front desk takes care of it. We have everything in the back of office. Again, these are, these things have like high, long shelf life. Right. So you don't have to worry about them expiring, you know, every few weeks. But other things we think about operationally is, like, you mentioned popcorn. Like, popcorn's a pain to clean up. Right. And so, you know, we also think like that when. When experimenting and who your clientele is, if they're going to throw a party and have popcorn everywhere. Now all of a sudden, take me an extra 10 minutes to clean that room. That cost me money.
- [46:35]
A
Yeah, that makes sense.
- [46:36]
B
Yeah.
- [46:36]
A
Yeah. One thing we've done at some of our hotels is, like, to provide a little bit of food and bed, but, like, not having to, like, get the licenses and do all this stuff ourselves. So, like, at a San Clemente hotel, there's a little cafe across the street. And we went to the cafe owner and we said, hey, like, we want to start bringing our guests over, give you guys business. What would that look like? And so he's like, I'll tell you what, for nine bucks, any of your hotel guests that come over in the morning, I'll give them. I'll give them an American breakfast with a. With a cup of coffee. And so that's nine bucks to us. And so what we did is we. We basically provide free breakfast for our guests, but it's across the street, and we provide surfboard rentals, beach cruiser bike rentals, and we charge them a 25amenity fee, but it comes with free breakfast. And then surfboard rentals and beach cruiser bike rentals. Right. What we found is only about one out of every five guests is actually walking across the street to get. To get the breakfast. And then each time they go over there, the owner just bills us nine bucks. And so we're arbitraging that. So that's kind of a creative way that we've, like, implemented it, but without having to do all the headache stuff. And then the other stuff, what we've done is I kind of like, just very packaged, basic breakfast that will package. Will partner with, like, a local bakery.
- [47:48]
B
Yeah.
- [47:49]
A
And then we'll lean on, you know, the staff that's, like, the first one to show up in the morning for them to go pick this up from the local bakery. And we'll just do, like, packaged stuff. Yeah, Coffee, bagels, like, stuff like that. That's very easy.
- [48:02]
B
Yeah.
- [48:02]
A
To kind of put out, like, a nice little spread in the morning for the guests. That's a couple creative things we've done. But, dude, I'm with you, bro. Like, I've had on guests that, like, are, like, experts in the restaurant industry and killing the game. But I'm like, dude, like, I don't. That's a very tough business to get into. Very hard to make money. Unless you. Unless that's. You're the only thing you're doing.
- [48:21]
B
Yeah.
- [48:21]
A
And so I always thought, man, if we ever get into developing hotels, like, way down the road and having, like, a really sexy, like, food and beverage, like, component, I would partner with, like, a very successful restaurant operator and let them bring that component of the property.
- [48:37]
B
Yeah. And here's the thing. We are so creative in structure is like, why not lease it out? But then it's like, okay, then you lose some of the upside. But do a lease with a kicker on revenue, right? Where it's like, you know, anything over 1.5 million, we take 20% of the revenue. Right. And like, that's how the lease works. It's a set amount plus the kicker. Right. So you can experiment and you could do so many things in terms of structure with hospitality. That's why I say it's like, it's entrepreneurship, Right. It's not just real estate. It's entrepreneurship. It's a business plus real estate, which is a big thing with hotels. And I think you're doing it right. We're not bringing the F and B in house and partnering with, you know, a local restaurant. We've done stuff where we offer a discount, right? So, like, we have a preferred partnership and any of our hotel guests get a 20% discount if they go and show their key. Right. Or their reservation or their receipt from the hotel at this restaurant. So it's like a win, win situation. I hate eating the cost of breakfast. I. Breakfast is my, like, least favorite thing at a lot of our hotels to provide, like, even the continental breakfast because, like, no one is ever happy with these, like, freaking.
- [49:43]
A
They'll complain.
- [49:44]
B
Yeah, they're always gonna complain about never, like, fills the cup.
- [49:49]
A
I've never stayed at a hotel for the free breakfast. Yeah, I've never. I'm not a big breakfast guy to begin with, though. Yeah. I'll like all intermittent fast, typically most mornings.
- [49:57]
B
Yeah. And. And my wife is like, the one who's like, oh, I want a pastry from here. There's like, Even if we stay at one with a free breakfast, like, we
- [50:04]
A
never going somewhere else.
- [50:05]
B
We're going somewhere else. But there's a. There's a huge group of people with families, sports teams that are coming and staying because of the free breakfast. But that. That's expensive, dude. Like, I hate it. Like, yeah, it's an 80,000, $90,000 line item on our PNL every single year. And that's a fat L because it never converts to positive reviews. It only converts negative reviews.
- [50:30]
A
Out of curiosity, how many hotels do you guys operate right now?
- [50:33]
B
Yeah. So right now we have 11 that are operational. We have two that we've taken full, you know, kind of full.
- [50:39]
A
What's it called doing a full renovation,
- [50:41]
B
full cycle and exited out of.
- [50:42]
A
Okay, two, two, full cycle.
- [50:44]
B
Got it. And we have three and a half. I say half because one is a ten room, small boutique asset. But we have three and a half under development as well, so.
- [50:52]
A
And out of curiosity, with 11 that you, you're operating right now.
- [50:55]
B
Yeah.
- [50:56]
A
How do you guys approach the revenue management?
- [50:58]
B
Yeah, so. So I have, I experimented with a third party management company.
- [51:04]
A
Okay.
- [51:05]
B
Worst experience of my life. If you don't have skin in the game, you're not going to operate for revenue management.
- [51:10]
A
Specifically for management. And oh, property management too. Got it.
- [51:14]
B
Yeah. Third party.
- [51:14]
A
I know there's third parties that will just do the revenue management and they'll take like a 4% slice on the top end. But they don't, they don't have skin in the game.
- [51:21]
B
They don't have skin.
- [51:22]
A
And then third party property management, we self operate all our stuff. You guys do too.
- [51:25]
B
Yeah, we now, we self operate everything.
- [51:27]
A
I'm, I'm a control freak.
- [51:29]
B
Yeah.
- [51:29]
A
And like when shit's underperforming or there's a problem at one of the, the properties, I'm like, dude, we meet real time in the office with my operations team.
- [51:38]
B
Yeah.
- [51:38]
A
And we, we come up with solutions. We problem solve and we're like, we roll it out, we move quick.
- [51:42]
B
Yeah.
- [51:43]
A
And, and I, I like having full control. The last thing I want to do is like go buy these hotels and then just, you know, hand it over to some third party and be like, all right, our future, our investment is in your hands. I'm like, they have no skin in the game.
- [51:54]
B
They have no skin.
- [51:55]
A
And that's why I would say, like, if you're getting into real estate investing, no one's, no one's going to care more than you. Yeah.
- [52:01]
B
There was actually someone in your community who asked me to invest in their project. And I loved the project. I thought it was great. Then they told me that they have
- [52:09]
A
third party third party.
- [52:10]
B
And I said, I'm out.
- [52:11]
A
Yeah, yeah, yeah.
- [52:12]
B
Now, I mean, I was nice about it, but I was like, you know, I just don't, I don't trust that, you know, like if it's, if you're putting money into. For one, I want to see the operator put money into it. Right. The sponsor put money into it. And then two, I want to know that they're dialed in. Right. And I've, I've had a terrible experience with third party management. The third party management company that we had, I actually caught, you know, the GM stealing money and had no idea. So One of the GMs built a pool on my company credit card and the third party management company had no idea that they were even like siphoning five, ten grand every single month. $80,000. They were paying personal. Yeah, they were paying for their kids daycare on my credit card. And I was like, how do you not see these charges? Like what does your accounting department do? So now we have in house accounting, I have a director of sales on my team who looks over the sales, all of our properties and they do revenue management. I have a VP of ops and then he has a team under him and they take care of all the operations for all the hotels and then dos will also report to him and then I am also dialed in. So like once a week I'm going to a property and I'm going to spend time there and I want to go, I want to sit with the gm, I want to see what's going on. I'm going to pull transaction reports, I'm going to make sure there's no staff staying at the hotel. There's even been times I haven't had time to do this lately. Like a couple of years ago I would show up at the hotel at like you know, 6am or 5am and I say, hey, give me the list of vacant clean rooms and I'm going to go knock on every vacant clean room and check and make sure nobody's staying in that room. It's like, how do you know they're not selling the room under your nose? Right? And so like I'm going to.
- [53:56]
A
Have you ever caught people doing that?
- [53:58]
B
So we've found rooms that are supposed to be vacant, clean and they've been
- [54:01]
A
dirty or they have like a friend or family member standard.
- [54:03]
B
But like, you know, you don't know, but you know that the room was used and someone made a mistake. Why is it in the system as vacant clean when it's been used? At minimum, I saved ourselves a bad review. Cause somebody would have checked into that
- [54:16]
A
room and worst case scenario, someone stayed there and left.
- [54:18]
B
Yeah. And, and now when we had a conversation with our management team, they're like, oh, shit, Sujay's paying attention. Like, we can't do this. Right. And so it's like, it's having that accountability and checks and balance, and everyone's good, everyone's great, everyone's intentions are right. But if you give them too much space, like it's just human nature, like they're going to be. And they don't mean unwell, probably, but they're, like, just trying to help a
- [54:40]
A
friend out or sometimes they're not thinking in the eyes of what's best for the ownership.
- [54:44]
B
Yeah, exactly. We got to protect our assets. So, you know, to answer your question, we do revenue management, all these things in house. We are looking into, like, AI, you know, especially with these, like, new PMS softwares that have open APIs and you can integrate revenue management directly through the PMS. We're. We're experimenting with AI. If you don't use it in your business, you're going to get left behind.
- [55:05]
A
Yeah. 100.
- [55:06]
B
There's so many tools every single day that it's like, you know, we're trying to figure out what the right one is.
- [55:11]
A
Yeah. I love it, dude. Sujay, man, always a pleasure, man. Dropping so much games, so much value. Where can the folks get in touch with you if they want to learn more about everything you're doing in the hotel game?
- [55:20]
B
Yeah, absolutely. I mean, the big thing right now is Instagram, so Sujmata on Instagram, go ahead and like, follow me. DM me on there.
- [55:27]
A
Yeah, shoot, my guy. A follow right there.
- [55:28]
B
I love it, bro.
- [55:29]
A
Yeah. What else? What else, what else?
- [55:30]
B
Yeah. Yeah. So, I mean, in Instagram is a big one. If you DM me there, I will respond. You know what I mean? I'll respond, I'll hit you up, I'll say what's up? And even if you like the episode and just. Or don't agree with something, hit me up. Tell me there. Right? And so we have a community that we're. That we've started as well. A lot of inspiration from the great Rich Summers. So we have a community and, you know, would love, you know, would love for people who are trying to learn to come into community, and we're, you know, taking investors for future projects.
- [55:58]
A
I love it. I love it. And where can they learn more? Just DM you.
- [56:00]
B
Yeah, just DM me.
- [56:01]
A
There it is. There it is. He is Sujay Meta, dude, I appreciate you so much. Always, always looking fly with the 50k watch too, my man. What's it called?
- [56:10]
B
The Presidential day date. It's a Rolex.
- [56:13]
A
And you got Oscar over there salvading. I'm Rich Summers, listeners. Thanks for tuning in. We'll see you at the next one, pe.