HIP E52 Bill Graf - Lifestyle Hotel Brand Costa Rica

[Music] Welcome to the Hotel Investor Playbook. Your guide to building wealth and freedom through boutique hotel ownership. Hosted by Mike and Nate. Get in the game. [Music] Welcome to the Hotel Investor Playbook, where Mike and Nate founders of Meloma Capital and your host. On this podcast, we talk story about everything you need to know to make money investing in hotels and in hospitality assets. On today's episode, we have Bill Graff. Bill went from working on Wall Street to building Oanda in Costa Rica, which is a hospitality brand that blends the style and comfort of a boutique hotel, but with the social energy of a hostel. So let's ride in line with what we do. We are pumped to hear Bill's story and we're going to get into how he traded suits and spreadsheets for surf towns and build a pretty unique hospitality business down there in Latin America. So Bill, thanks for joining us and welcome to the show. Thanks for having me. Yeah, Bill. Pump, let's go. So why don't we start right now? First of all, where are you looking? Right now I am in Panama. Okay, great. And so you're living the dream in Latin America, but your roots are in Wall Street. And so I have this disconnect between like those two completely separate paths and I need you to help me understand how you got from point A to point B. So why don't you walk us through the journey from leaving the private equity world to traveling the world and then eventually founding Oanda. And ultimately, I want to know what problem in hospitality did you feel compelled to solve? All right, what problem did I feel compelled to solve? I'm going to file that one away. We'll come back to it. So yeah, how did I end up trading a career in finance for each life in Latin America? So originally I'm from Madison, Wisconsin, studied finance and real estate at University of Wisconsin, read out a school, joined a middle-market investment bank called Harris Williams and Company. And I was in the restaurant retail group, which means that I advised on the sale of a lot of large restaurant franchisors and franchisies, think 100 plus unit Wendy's franchisees, for example. Did that for two years and then jumped to a private equity fund out in San Francisco. But between those two jobs, I've always wanted to go to Southeast Asia. I had seen a video or something of the full moon party in Copenhagen, Thailand and I really, really, really wanted to go. And so I had two weeks off and I essentially flew from my going away party at the bank to Tokyo to Bangkok and started, I think I checked into the park, I had Tokyo and then I stayed at the LaBua bank. I got to stay in all these five star hotels and one of my music festival buddies, hippie buddies suggested, hey, you know, you were sort of a hippie at heart. You should really get off the beaten path and and stuff go into these five star hotels and try a hostel. And then I'd never really done the hostel thing before. And so on his advice, I got to this little island in the Gulf of Thailand called Kotao. I checked into a hostel called Spicy Tao, which I don't think exists anymore. I think it was like five bucks a night. It was a hammock kind of on the side of a hill. There was like not running water, you know, the shower was with a bucket. And I had the best weave of my whole life. It was absolutely amazing. It felt like summer camp or something. And there's all these these people for all over the world. And I still have these people from from New Zealand and Australia and Europe and fascinating. So how long are you here for thinking that my two week trip was like the longest vacation that anybody had ever had? And they all started talking like, oh, I'm on a gap here. And I was just like, what the hell is a gap here? Nobody told Midwestern bill that you could just not do anything for a year at travel around the about of a bag pack. I was like, wow, that sounds amazing. And so my two weeks were up, packed my backpack up, flew to San Francisco and went to work for private equity fund. And I had it filed away in the back of my head that I wanted to do a gap here, right? And I kind of decided that I needed to do it before I turned 30 if I still wanted that like crunchy bag bag or hostile experience. And so I had worked at the PE fund for three years, that now with my boss and just said, hey, you know, can I get us a badacle? And they were trying to give me the sign on. I went on a partner track and step up in in terms of my level of commitment to the firm. And I was just like, I'm happy to do it. But I have to do this. I've seen I've seen this light experience and I've got to do it for myself. And they ran out of the flag bowl and he came back and he said, no, this is finance. We don't do sabbaticals. I'm super sorry. We can't give you one. And so I just said, I quit. And he laughed and you know, he gave me a high five and said, give me a call and you get back. And I never called him back. And so I left that job and I started in Europe and then went to Southeast Asia and motorbike and solo motorbike to be it non for like five or six weeks. And what was going to be three months turned into six months turned into nine months, essentially all over the world, staying in all sorts of accommodations, but found myself bouncing back and forth between hostels when I wanted social and hotels when I wanted to be comfortable. Right. And I was in my late 20s that it goes 28 or 29. I'd kind of aged out of like the party hostel back back or hostile thing that cares to be teens to 24 year olds on a modest budget. I just keep thinking to myself, why is it not a place for people like me? And at the time, people like me was a pretty small bucket of ex-finance bros back back in through Southeast Asia, but it's something that got pushed into the mainstream. I think in COVID happened the rise of digital nomadism and geographic flexibility work. But that really planted the seed for me into what ultimately grew into owned other company that I founded a few years later. Okay, we're going to dig into this, but I got to rewind. Okay. Dude, I just, I think that so many people have that moment where, you know, where they're working or what their opportunity is, is of an incredible opportunity. And when they hit the resistance of, yeah, no, we don't, we don't, we're not going to support that. The mindset that you had to just be like, no, this, this is what I'm doing, that level of conviction. You got to walk us through, because I think that this is pivotal in a lot of people's lives and a lot of people that are looking at investing in real estate and in hospitality to make that step, to own that conviction. I want to understand your mindset. What gave you the belief that that was the, the right move for you? Oh, and that's a good one. I think I was lucky enough to achieve professionally what I thought I wanted to achieve at a very young age. I always growing up, I wanted to be the business person, flying first class and riding at a black car and all these things that I got on, I was like 22. When you get there and you're flying first class on American Airlines from like Miami to Philly, you're like, oh, this isn't actually that great. Now, you're in an Uber black car and like, this isn't that great. And I kind of had this epiphany, right? I was like 25, I was sitting there looking around at the trajectory that I was on. And I sort of saw the path that my wife would take by state there. And I sort of said, you know what? I kind of got what I came here for in terms of those experiences and those professional achievements. And I just had this feeling that if I didn't do this, it would be one of those things that I'm an old man sitting somewhere 80 going man. I really wish I would have done it. And just having that nagging regret of I didn't do something that I wanted to do. And I, you know, the back of my mind was, you can always go back to finance. There's somebody that'll take me back, whether it's a bank or a P.E. fund or a hedge fund or whatever. There's a certain window of life where you can take leaps like the leap that I took. And if you don't take it at that point in time, that door, that window could close. It's not to say that I'm different on the whole road and in the future. But yeah, I do do this sort of an hour and ever. And so I took the leap and I don't regret it. Yeah, I think that this is so critical to understand. Number one, it sounds like that fear of regret was really a motivating factor like, okay, well, if I don't do this, then what? And that's a really important question to ask. But then at the same time, what's the worst thing that can happen? Correct. I end up, that was my call. I end up back where I am right now. And yeah, I think that that's really sound, I think that's really sound advice for when people hit that really pivotal moment. Yeah, I want to hone in on what you have been describing. You know, your background is not hospitality at this point. I mean, sure, yeah, working on well, street finance and then having some experience with franchise companies, but you're cruising around, you're enjoying this glorious lifestyle, you're you're taking this gap year. But how did you come to the conclusion that you wanted to go from enjoying staying in hospitality locations to running them? Well, I mean, I think we'd be kidding if we didn't say that that's not a thought that everybody's had after a few too many beers sitting around a campfire somewhere right at a really cool hostel, really cool hotel. You go, man, like, how cool would it be to have my own place like this? And I had my fair share of those thoughts when I was traveling, but but I actually didn't take the leap into doing this professional until years later. I traveled around, I got in the I did go back and got another corporate job. I did it for about 18 months. I hated it. I got let go. I got a severance. So then I just traveled again for like six or nine months in central South, South America. And then COVID happened, right? And so COVID was really, really the genesis of those me sitting in a condo in Madison, Wisconsin, in April of 2020, too cheap to pay for YouTube TV. So I was watching Bloomberg streaming on my Chromecast. And I just remember every morning I woke up there like, oh, we're never getting on an airplane. We're never getting on a I mean, it was all doom and clue. And I was like, travel is one of my favorite things in the world. Like a world where we don't get to go do those things again. It's not necessarily a world that I want to live in. And and one part that we skipped over was the private I put on that I worked for I would describe as a highly contrarian fund when everybody's running one way they like to run the other way. They're also what I would call a deep value fund. We never got to do the fun sexy deals trading at high multiples. We were always looking for diamonds in the rough these hairy funky deals that for whatever reason nobody else wanted to do. But that if you did need did right, there's sort of an asymmetry in the risk reward. And so I'm assuming they're going, okay, everybody's every day to the T.D.L. people are running out of hospitality, right? You're watching the stop tickers for the cruise lines and the airlines and all the hotel companies and they're just tanking. And that for me was sort of ironically the genesis from going, okay, this is it. If I'm going to dive headfirst into this rather than do it one times or good, do it one times or tough because that's probably when there's the most opportunity. And so had that crazy idea like condone Madison, Wisconsin started putting some fuelers out and recognized it. I don't know. I've never run a hotel. I never run a bar. I was a teenager. I were going to target stop stocking shelves. But I don't know the first thing about running hospitality business. And so one of the first things I did was effectively identify my operated partner, a guy who's now our COO. He's Dutch. He's been in hospitality his whole life. And I called him up and I said, hey, that's crazy idea. I'm going to go down to Central America broadly. I'm going to find a hotel. But if I find home, will you get on a plane and come over and help me walk? Because I don't know how to run. And so that was really the genesis for what ultimately blossomed into Honda. Sounds familiar. Yeah, I think we can we can relate to the term Harry Funky deal like contrarian. That definitely fits the formula that we follow so far. And to a degree, there's a lot upside in it, but it also can be very challenging. And so I want to dig into some of those challenges. But before we get down that route, like I need to know a little bit more about what is owned out. What is it that you're providing? Is it a particular hotel? Is it a hostel? Who is your guest avatar? So I'm going to take a step back because actually for the first three-ish years that we were building this company, I think I talked about it wrong. I talked about our go-to market rather than what we're building. What we're actually building is a franchise system for small hotels in lifestyle destinations. Looking back at my experience at the bank, in the United States, we're part of it with brands and franchises for fast food, retail restaurants, the whole thing. What I realized when I was traveling in these exotic places like, I don't know, the Henrikville, Cambodia, or Kotao, Thailand, there were no brands at the end of these long dirt roads. Right? And so that's the opportunity that we're trying to take advantage of is, can we build out a process and a system and a platform that allows you to profitably manage, call it sub-hundred-key, sub-80-key hotels in some of the world's most interesting places. And so that's really the core of what we're building. And then our first go-to-market is the brand Ounda, which is an experiential travel brand targeted at people in kind of their 20s, 30s, and 40s. As you said at the beginning, it's the sole of the hostel combined with the infrastructure and entities and creature comforts of like a three-star hotel. And that's what we want to look because that's where we saw the most opportunity. But what we're excited to do going forward is take our platform. And there's nothing stopping us from deciding, hey, maybe this one particular property would be better for brand for families or for couples or for something higher and or surf camps or yeah, you could pick all sorts of different go-to markets and our plan, just like all the major hotel brands is eventually to have more than one flag, right? So that when we identify a property, somebody brooms us a property, we can kind of figure out what bucket it fits in. But underlying that is that platform of processes and systems that allows us to profitably manage these small hotels that the big brands will never touch. Yeah. All right, so let's kind of connect the dots a little bit here. So you've got this experience in systems processes with the franchise model. Then you go and you have this amazing experience where you go, hey, I want end of the dirt road type of experience. I don't want your cookie cutter hotel experience. I want something that you phrased as more of a lifestyle hotel or experiential lodging. And so you go down to Costa Rica and what was it about Costa Rica that made you say, okay, this is the spot. Why Costa Rica? Yeah, I mean, it was it was a super practical choice. We knew that we wanted to cater to essentially Americans and Canadians. And so we said we want to be in the same time zones as the continental US. But we don't want to be more than a four or five hour flight away. And we need somewhere where we feel comfortable owning the real estate. We knew just like any health fatality brand, you start by owning the dirt, you start by owning the bill. You can't jump straight to frameworks. And so our target countries were called Mexico down to Colombia, give or take that fit those parameters. And ultimately went with Costa Rica just because it's from a from a jurisdictional standpoint from a stability standpoint. If I have to own real estate somewhere in Central America, Costa Rica is where I want to own it. It's not cheap. It's highly bureaucratic. There's a there's a million things about Costa Rica that make it challenging. But at the end of the day, it's a country that abolished their military in 1948. They reinvested all the money into healthcare and public education. They have not been subject to a coup. Like essentially almost every single one of the neighbor countries has been we can conduct business in the US dollar. There's two international airports each each serving I think 18 plus US cities. So just tons and tons and tons of volume. Easy to get to comfortable. And just as a great reputation as a destination for sort of adventure travelers and folks seeking out those types of lifestyle destinations, right? I mean, we look at the map of Costa Rica. And I think there's easily 10 pins that we could put on that map. Yeah. I was really excited to dive into this because we get asked all the time like, Hey, do you have an interest in opening a hostile in Mexico or how about Costa Rica or these two variety of other foreign countries. And we've always just explained, you know, that's that's not where our focus is right now. I think you're actually the first person bill that that we've had on our show that is that that's purchasing real estate in a foreign country. So I really want to dive into the nuts and bolts of owning property in a foreign country. Can you walk us through like, what is the process? I mean, is it just like buying in the US or there are big differences that investors should know about. So it's different country by country. And I sort of skipped over that. That's one of the reasons I think we ruled out Mexico was in Mexico. And did you need like a local partner to own real estate? Costa Rica was chosen because foreigners have the same property rights as Costa Rican citizens. I would say, you know, and I'm most equipped to speak to Costa Rica. So don't take what I'm saying is necessarily applicable to any foreign country or even any Central American country. In general, if you find a good attorney and if folks are interested, I'm happy to make recommendations or introductions. You're good. They'll walk you through the process. I would say be careful about brokers in Costa Rica specifically. There's no accreditation to become a real estate agent or broker. So anybody can perform to be a broker. And they, some of them are very good. Some of them are not very good. But in general, yeah, you go down. You find a piece of property that you want to buy. You engage a law firm. They have to spin up a local entity. You typically don't title things in your own names. You need to spin up in our case. It's an SRL society. It's essentially an LLC. Translates the same things LLC. You spin up that LLC. It gets a bank account. The LLC buys the property in Costa Rica. Most land in the interior of the country is titled. You do need to be careful around the coasts. There's a fringe of 200 meters from every single coastline. 99% of it is concession land where you do not own it fee simple. You have it on a concession from the government who jumps in and regulates what you can do there. But then yeah, you buy it and you hold it in the company and you pay property tax. And I mean, it's all relatively straightforward. And again, one of the reasons we chose Costa Rica is that there's robust network of service providers like accountants and lawyers who will help you through the process. Some of the biggest differences that you do need to be careful of is unlike an LLC, there is no pass-through entity in most of these countries. So like each of these entities is a tax paying entity itself for like a corporation in the United States. So to the extent that it's profitable, it will pay taxes in whatever country you're operating in in our case in Costa Rica. However, those taxes do tend to be dollar for dollar deductible from any US tax liability a US owner would have. And so rather than doing a deep dive on the nuance of taxes that'll bore you guys, I would just flag that as if you're going to buy property in a foreign country, make sure you've got a good tax advisor in the United States who understands how to take advantage of, again, those are not deductions. Those are tax credits for taxes paid in a foreign jurisdiction. Yeah. Okay. I want to circle back to the title piece because this is my biggest fear. This is what keeps me up at night. I think about, and this is a total hypothetical scenario, it's this recurring dream. It's like, okay, I own this awesome piece of property in Costa Rica. Woohoo, I'm having a blast living the dream. And then one day some folks come in and say, you know what, this is actually my relatives land. You bought this land illegally and we're taking it back. And I'm 2500 miles away going, I'm sorry, what's happening? And it's a foreign language. It's a completely different culture, different country. And through some bureaucratic process, they say, sorry, yeah, actually, they do have a stake in this property and the title that you thought you had for Enclair is actually, yeah, it's not. And so this could occur even in the U.S. This is a challenge even in the U.S. But it's even more enhanced when I think about Costa Rica to be specific. And so I'm wondering like, okay, can you provide some insight on that? Is that fear warranted? Or is it title insurance just like just as effective as in the U.S. and then is what it is? It is a warranted fear that you can mitigate. If you go in and you don't use a lawyer and you come in and somebody just as bite this piece of land and they you you wire them cash and they enter a piece of paper, absolutely something like the horror story you described could happen. And again, without boring people, somebody if you want to look into it right, and most of the countries in Latin America, I can't remember. There's there's two different types of law in the world. It's common law and civil law. I believe we follow common law in the United States, which is derived from English law. Whereas most of the former Spanish colonies are civil law They tend to be way more bureaucrac which can be a pain in the ass when you're trying to sign documents and things like that But what it means is that they all have national registries titles for everything vehicles property Whatever is in a database with the government, right? So if you engage with a competent attorney that will be one of probably the first thing they do in due diligence when you go to buy a property is pull the title history from the government, right? And you get it certified and stamped from the federal government and that before you buy it You would know if there were any outstanding claims on that title or disputes on that title And so when you buy it the deal is only technically done when your new title has been inscribed in the national registry And then most law firms as part of their sort of annual compliance package Monitor it and to the extent that somebody does try to challenge or change or do anything like that you get an alert And so short answer to your question It's something you need to be aware of cognizant of but you can mitigate it whether or not title insurance explicitly exists I'm not sure we've never been advised to take out a policy, but yeah again all roads point back to get a good lawyer Yeah, so I went on your website and I immediately had an emotional reaction Because it's killer and you paint the picture there's a there's a lady she's driving a bike or motorcycle or something and she's cruising around Everyone's so happy and everyone's surfing and there's that what's that term in Costa Rica? That's like the puravita Purevita they're living the purevita life having a blast, okay? So for obvious reasons there are advantages in terms of lifestyle You've already discussed some of those what chose you what why you were drawn to that lifestyle But this show is first and foremost it's about investing in hospitality assets And so what I want to know is from an investor's perspective What are the upsides of investing in Latin America for example? What are the real advantages from a profit potential that you saw over Investing in a lifestyle resort. Let's say domestically Yeah, very big picture. I think there's arbitrage opportunities You need to be careful you need to do your diligence you need to be discerning you should jump at the first deal that you see But these are markets that are significantly less sophisticated and less transparent than the markets in the United States and Western Europe and and That's actually to be played to your advantage for example There's no MLS in these places. You can't really get cops Which can work against you work and work for you in general our big hypothesis right? If you look at the version of my pick the highest little version of my pitch deck The thesis is that there's this long tail So it's something like 90% of hotels in the world are under 100 keys Most hotels at Costa Rica are under 100 keys. It's mom and pop hotels all over the country There's great infrastructure, but it's under managed And so there's an opportunity if you can come in and you can strike the right deal that you could buy a piece of property And not improve performance by 20 to 30% right true, which I think would be a home run for a deal in the United States I think we like 5x to the total revenue from our first hotel relative to the previous operator Right, and so if you can go in and you can structure a deal where you're buying On either replacement value or below replacement value or convincing the seller to sell to you On the basis of a cap rate applied to their NOI And you can 5x revenue triple profitability you can get to outcomes that You probably not going to be able to get to in a real estate deal in the United States just because those markets are so much more robust They're more transparent. There's more buyers, there's more sellers, there's more data The level of sophistication is just that much higher And so if you're willing to rule up your sleeve and take the risk I think you can generate outsized risk adjusted returns by doing deals in these geographies Hey guys, if you're excited about investing in hospitality but still have a few question marks in your mind You're not alone. Maybe you understand the potential but you're not quite ready to take down your own deal quite yet Early in our journey both Mike and I invested passively alongside seasoned operators gave us the behind the scenes view and showed us a playbook while our money worked for us That's what we offer our couple partners a chance to be a part of real deals See how they come together and start building the confidence to doing yourself without carrying all the risk on your first go If you'd like to know what that might look like for you just click on the link in the show notes Now let's get back to it when I hear that One of my first things that I go to and look I When you say that I go yeah, but and usually when I hear yeah, but it's because there's a limiting belief behind that Yeah, but so I just want to I want to admit that as I as I ask this question One of the things that we look at when we look at okay, we believe that we can increase revenue profitability and then when we go to but ultimately there's gonna be There needs to be an exit for our investors in some capacity and usually that exit is the sale of the asset and so when I think about you going in and tripling profitability I go okay on the flip side of that though. Do you really are you really going to realize that true value Like you would in a any us property who ends up being that buyer that's gonna go in and pay that new adjusted exit price So that's a fantastic question and and candidly we have not exited a piece of our property yet So I want to point that out before we're doing my answer, but I will say it is Everybody wants to own a beach hotel in Latin America the number of people that we see coming to Costa Rica Panama Guatemala Nicaragua I'll lump them in my dad's a dentist. I love them But it's doctors and dentists and lawyers who have this dream Everybody wants to own one they want to brag about to the Friends of the Country Club They don't understand how much work is involved and so when we model out our exits I think one of one of our the most realistic opportunities that we professionalize these things and we turn around We'll say look here at it. It's here's a term key hotel We've done all the heavy lifting we've done all the hard work. We're happy to either continue operating under a master Wecer in each ma and then you've got your own hotel You can do whatever you want with it, but you don't have to worry about any of this stuff We de-risked it significantly and so for the smaller hotels that probably applies to kind of 20 to 30 key hotels hotels with a price called between probably three and five million dollars or target any high net worth Maybe ultra high net worth individuals Once you get above that there are regional private equity funds. So for example We actually just signed a master lease today on a 60 key property in Central America I can't quite say where but it's it's owned by a regional private equity fund that has three or four properties like this in the country Where we are and so there is an appetite But again, yeah, it's not quite as developed as the United States and so I do think that's a legitimate risk And it's one that I hope to have mitigated in the next 12 to 18 months Look to exit our first property so I could come back and say hey Yeah, we're able to do it here's how we did but sitting here today. No, I don't have a tracker could have having actually done that Yeah, I appreciate that transparency All right, well what I know about Latin America is The biggest example of someone operating in this space because basically what you're doing is Look, I hope you don't take offense this, but it's a post-tell right? It's a post-tell Very much so yes, it is a glamorous hostile and look we operate with the same mindset like we went and built something That was really cool. It wasn't just to the standards of like the cheapest thing possible at a backpacker could have forward We said look we're gonna go build it to our standards because we want to be proud of what we're offering and much to the degree that you're talking about the trophy asset the doctors the lawyers the dentist What have you it feels good to own something that's cool and so the last big company That we witnessed operating in central America was Selena and I believe I don't know this for certain Maybe you can help a test to this But their model was not to own the real estate. It was just to lease it and operate it. It was a cash flow play It wasn't an equity play. It wasn't like in the future. They were gonna build up this big portfolio and exit By some huge sell they were just gonna manage properties and generate cash flow But that failed they went on a business. They were bankrupt And so I need some help understanding. Okay There's a lot of growth opportunity to scale franchise But you're talking about one point. I believe your first property is playa grande and you own that right? But you just Communicated now that your second property is a lease Which funnily enough it is a former Selena property that I'm sitting in Okay Wonderful. So even better So walk us through this model then is this is this really uh an operation thing where you're just gonna cash flow from these bad boys Yeah, I mean with regard to our strategy we have an opcopropco structure, right? We see opportunities on both sides and so We're more opportunistic on the real estate side. It's a it's a higher bar because it's more capital intensive But at heart I have a real estate guy who studied real estate in college I like real estate most of my personal monies tied up in real estate in our real estate It's just a much higher bar for those deals and so the reason we have be outcode going is because we think there's a completely separate opportunity there To either lease or manage under an hma or or potentially a franchise agreement Hotel is that for whatever reason we wouldn't want to own or don't have the capacity to own I don't have to get lighter up one second. Yeah, I just because I'm not as smart as we've been and I gotta know what is an eight you said an hma So an hma right so if we think about A whole hotel. The simplest structures where you own it, you operate it, right? That's like every mom and pop hotel. It's just one company that owns an operates. The next one up the level of complexity would be somebody owns a hotel and you just lease it. So for example, the hotel that I'm sitting in right now, we pay fixed monthly rent, right? And the landlord doesn't really care how our revenue is or how our reviews are, what brand we put it. You know, he just gets to collect his free is fixed monthly rent every single month. The next step up like the sophistication curve would be a hotel management agreement. And this is what you typically see for Hilton's and Hyatt's and Marriott's and things like that in the United States. It's a combination of hotel management agreement and a franchise agreement where the building owner hires a company to come in and run the hotel for them. And so under an HMA typically be the manager just gets a percentage of revenue and profitability. You construct your a bunch of different ways, but that the managers not actually taking any profitability risk. They are just managing an asset on behalf of the owner. And then all the way up right where we're seeing more and more of the legacy hospitality company's move is the franchise mall where they don't own the building. It's not their employees in the building. They're not managing it. They're literally just licensing their brand and their website and their loyalty program to the building owner who then hands those brand standards to that management company and says, hey, you need to go run Hilton's brand standards. And by the way, if you feel to meet them, Hilton's going to work their name off the building. And in that franchise model, it's great. I mean, if you look, I think Marriott has actually higher margins than Microsoft does. Like they're margin on their franchise revenue is like 68% or something like that. It's absolutely wild if you can pull that off. And so I'm not sitting here actually advocating for one of these models or the B.O.P.R. There's a thousand ways it's going to cat and you need to make sure that you're deploying the correct structure for whatever deal that it is that you're working on. One of the reasons for example that we're leasing this property here and it's saline released a lot of the properties is that the HMA structure is just not understood for properties that this size and these geographies. Most of the time your counter parties are not super sophisticated folks. It's it's older folks whose families support these hotels for generations and generations and they kind of don't want to have to care what your PNL looks like. They just want you to sign a various contract that says every month in the fifth of the month I get paid $20,000 and you're going to maintain the property. And if we like each other at the end of five years we get to renew or something like that. Okay, but but what we haven't addressed in this is where Mike's original question was is okay. Selina failed. Why and what what is the different what how do you differentiate from that? So what did they what was their structure versus what is Selina? Selina failed not strictly because of their structure although structure play department. Selina failed because like we work they were a realistic company masquerading as a tech company and they raised a bunch of venture capital on realistic term or sorry on venture capital terms with venture capital growth expectations and they couldn't meet them and they never actually figured out how to operate profitably. And so I've got a sort of a love hate with Selina. I mentioned I was traveling I don't know 10 years ago bouncing back and forth between hostels to be social and hotels to be comfortable and I do remember my very first Selina was an in teabagwata mala and I checked in I was like holy shit like this is it this is the place. This company's got it figured out and it definitely stuck with me. It was definitely in the back of my mind when we launched Kondas is are we always going to be thought of as a Selina competitor. Since then I think I've stayed in 20 plus Selinas and what I saw happen is the quality you know of existing locations declined and then the quality of the new locations that they opened declined because their focus was never on operations. Their focus was never on profitability. Their focus was actually never even on the guest experience. Their focus was on growth and growth a lot and that's ultimately what brought them down if you go and look at their public filings you'll see that at the end it didn't matter how many new locations they opened because each marginal unit was unprofitable at the four wall left right at the site level so every time you open a new location you're actually becoming less profitable and that's ultimately what brought them down if they had slowed down. Figured out their unity economics and ensured that every time they brought new properties on they were profitable within 12 or 18 months I think they'd still be around. Unfortunately they were chasing vanity metrics and they chased growth at all costs and networked when there was sort of free unlimited money in a zero interest rate environment but in Q1 of 2023 when interest rates went up and that the free money party stopped and the VC ran out they were burning a hundredish million dollars of cash a year and they couldn't figure out profitability before they ran out of cash and that's what happened. Can we talk a little bit about funding for your projects here because I've heard you mention that you're going to make improvements you'll find an opportunity where you can go and you can like in your case you 5X the revenue but in order to accomplish that oftentimes it's more than just the staff and the personnel you're making physical improvements which takes cold heart cash so how does lending work so there's two sides I want to know about how do you fund this from a lending perspective is it possible to get bank loans and then secondly from an equity perspective how have you positioned raising capital for these has it been a syndication or joint venture walk us through that. Okay so let's start with our first property right it's a 20 key property we ended up putting about two million dollars into it all it so hundred thousand dollars a key we raised equity to do that deal well I went and fund raised it was mostly from friends and family former colleagues my extended personal network on an idea and my reputation back in 2020 or 2021 the intention was to get property 100% with equity and so that's what we did to begin with bank lending is substantially different here it's substantially more limited I'm not going to say it doesn't exist it does exist but it's very difficult in definitely in Costa Rica most of the most of the simple American countries so we did the first deal with equity we were able to get a loan from one of our shareholders we actually bought a second property often the cloud force of Monteverde that we've owned for the last two and a half years we've been operating it as is it's a kind of a rustic pensiome and we've been going to the entitlement process and building out plans completely redeveloped that and where we got is that once we get to three years of operating history that's when the banks will talk to you and so we were able to get a bank provided mortgage in Costa Rica I would like to continue expanding our bank banking relationships but it's it's on a much slower time frame than you see in the United States just to give you guys sort of round numbers I mean we got I think we got a slightly 40% loan to cost about an $8000 loan on a $2 million property and it's it's a it's a variable rate mortgage if they use some Costa Rican index I forget what it is but the effective interest rate is about 10.75% so significantly higher than you'd get in the United States in general capital formation is probably the single biggest challenge that my company faces right which is one of the reasons why we're pursuing some of these lease deals again this new deal but we just signed today it's the 60 key hotel here it's at least with the option to purchase right and so our hope here is that we can run up for three years once we get that operating history we go to a bank and maybe we can borrow enough to buy it but if you're starting fresh you need to come well capitalized and I think again that sort of limits the pool of participants here I think it's one of the reasons why you can get outsized returns because it just makes it that much more difficult to do business in these countries you got to show up with cash at close yeah I mean I'm just running the numbers real quick and I'm making some speculations here but you know I've looked at your website and I see these rooms for 13 bucks a night no grand of those are dorm rooms right I don't know how many bodies you got in there but I doubt there's 100 so some rough just benchmarks based on what I know about 20 a 20 unit property with a mix of privates and dorms I mean you can't be doing more than 7 800 thousand dollars revenue right doing about a million okay okay so that's more than so so we do and it's funny we've struggled with this what to call these things I call it a hotel but in actual that we actually do more than 50% of our revenue from non hotel fence 40% of our revenues the hotel or 60% is F and B and tours and activities and transportation things like that we almost landed on calling these things like social hubs or community hubs because unlike a traditional if you think about a resort right people say oh how's your resort and Costa Rica I'm like I do not own a resort and Costa Rica JW Marriots are resort the Westons are resort it's behind 15 different gates and you got a check in with security to get there and they're really designed to isolate folks from the surrounding communities the people spending money at the Marriots other registered Marriots hotel guests our properties are designed way differently we're designed to be integrated in the communities where we operate our doors are wide open and so some of our best clients are people who are even hotel guests right that the digital nomads who live across the street they have an Airbnb for six months but they can move around eat like two meals a day on cram they use the co-working space they have their friends and family stay at our hotel and when they come to town to visit and so we're able to drive outsized unity economics because of our diversified revenue streams and the fact that we don't rely exclusively on our in-house hotel guests to drive revenue yeah now that makes sense I mean I get it so there's this disconnect because the Marriot is offering American prices for that experience in a Latin America country and so there's a higher margin that they could possibly capitalize on but if no families no kids your advertise your avatar from what I understand or more of the What we call remote worker. they're there for a longer vacation. So they're probably a little, they're less inclined to spend as much because they're for a longer vacation. So if they're looking to spend less money, I'm going, all right. We had Bashar Wally on the podcast recently, and he was talking about go for the high margin opportunity. He gave this example, like, would you rather serve McDonald's and sell a bunch of McDonald's burgers at a low margin or just go sell this to Luxburger and sell a fraction of them but make more money? - You know, I don't know that relates exactly to Hostile. - Well, so it's funny. - It's funny. I know Bashar, he's one of our advisors, and I respectfully disagree with him there. I think one of the reasons, hospitality, high in hospitality is very crowded. I think there are a lot of people chasing very, very high margin. There's not people doing a high volume hospitality concept because it's really hard to do that well, right? When traditionally we think of hospitality being very high touch, very people focused that you want a higher staff to guest ratios and that's how you drive those margins. We subscribe war to be, I'm not gonna say McDonald's philosophy, I'll use Chipotle or a cup, is there a five guys or something, you know, a bougie burger, but we pride ourselves on being an affordable price point. So that guy, you know, let's say it is a remote worker saying that's just for a month, could he say a little bit of money by going down to the store and buying a beer? Sure, but like, our beer's priced right at that sweet spot, we're betting on the fact that he's just too lazy to do it, right? And it's a convenience play. We try to take friction out of consumption and have onsite programming to keep people there and keep people spending, right? When you have a reservation with us, we keep everybody's credit card on file and you can just run up this big of a tab as you want, you don't even think about it and you get the tap at the end, it just doesn't seem that bad relative to the service and the value that you got. So one of the other things I do think is worth mentioning when we talk about Unity, Canonics and Margin, because we sort of have two modes in which we operate our business, right? And so what you're seeing on the website is our sort of day to day mode, where we're selling dorm bets for 13 bucks, right? We sell for occupancy, we're trying to get as many bodies in the property as possible to drive experience, direct social interaction. So that when we do have that onsite programming, it's really fun. That's actually not where we make the most of our money. Where we make most of our money is B to B. And what we found is that there's this really interesting underserved niche in corporate offsets. We've leaned into doing corporate offsets for like companies that have raised venture capital with teams of between 20 and 50 people. And what we do is we just privatize the whole hotel. It's totally turn keep. We had an offset client earlier this year, they paid us what was it? $150,000 for four days. And they brought 50 people down it, it was all inclusive food, all inclusive beverage. We took care of all the transportation, all the activities, churred, catamaranths for them, brought in speakers. Now we've got our multifunctional deck with the projector where they can do presentations and stuff. And so for us, that's what a high margin client looks like. We're not trying to fight high margin onesy to see clients. We're trying to find a high margin B to B clients. And then we can show our timeline with those B to B clients. That's when we operate in the $13 night store and bit mode. - Okay, so I wanna go strategic on this. So we did attack a little bit. I wouldn't say full force, but we had this as a philosophy. So how do you run, when do you open up reservations for somebody to book them? Like how do you keep the ability to be able to book the entire thing? How far out does that happen before you start helping opening up for just standardized reservations? - We usually only open up, I think, like 90 days out for standard reservations. Most of our guests are not booking more than 90 days out. The vast majority of our bookings are within to read a six weeks, I would say. And so, I mean, that's one of the things we talked about the franchise system all at some beginning. It was sort of intangible. One of the things that we've done, if we build out a data warehouse, we use Tableau, which is a business intelligence tool. Any of these kind of questions we can answer very quickly and dig into it. And that was one of our learnings is that what we should try to do is the booking window for a corporate offsite is more of the three to 12 months out. But then the booking window for our ones of the Tuesday guests is sub three months. And so they compliment each other really well there. And so that's really our sales stretch is try to sell corporate offsite weddings, batch the parties, wellness retreats, all that stuff. First, I know whatever it doesn't sell in that mode gets released to ones of the Tuesday's bookings. Now I'm really excited about this bill. I mean, for listeners, I don't even see me, but I'm like standing up an extra inch because I'm like, oh, tell me more about this. 'Cause I'm seeing this pattern over and over and over again. People on Palm Springs, people in Blue Ridge Mountains in Georgia, who have these killer little lakefront spots, whatever, right there is these, I wouldn't call it micro resorts, but there's just constant theme of saying, okay, we can create something really freaking cool. We buy something that is unreally realized in a sense. Like someone has some old decrepit cabins. It's in a great location, but it's kind of remote. And the seller's like, I don't know, it's been my family for 50 years. Oh yeah, I'll sell super cheap. And someone goes in with a fission. They put in the cold plunge, the sauna. They have great little like common areas where people can interact. And this thing's all set up for bonding and for community. But if you look at it from the lens of, oh, it's just a really cool like individual place to stay. Well, people don't always want to connect with strangers. They want to just go and have their little like experience, a little romantic way, whatever. But then how do you go and you feel like the economy of scale of like being able to fill all the units where you got to make the block. And then you got to advertise to those groups. And so I'm like, yes, I like this idea. And then I go, oh, I don't know how to advertise to groups. How the heck do you get them? Like how do I get these groups to come and want to stay at my spot? Like I don't know these corporate, I don't have like a relationship with these big tech companies. Like do I just pick up the phone and call one of these tech companies and say, hey, you want to come stay at my cool little spot? Like it doesn't have to be in Costa Rica. I mean, I see these things everywhere throughout California and all these different states. How do you get the people? How do you so how do you market to these groups? - So that's the secrets of us, right? I mean, and I can't claim that we've perfected it, but I can tell you what we do. It's we don't market, we do sales. And so we start by running a screen. We know about our property, right? As we've talked about a few times. It's designed for folks kind of in the 20s, 30s and 40s. This is not gonna be a great venue for like the president's club sales people coming out with their wives or their kids like people like my dad's age. And so we target venture capital back to startups in US cities with direct flights to the Liberia Airport in Costa Rica, which is the closest airport to us. And it was a tool called CrunchBase. And you can screen based on when did somebody raise a round, right? So that's the catalyst for us. Is what did they raise a venture capital round? 'Cause guess what? If they just raised a $10 million round, they got $10 million in the bank. And coming to spend, I don't know, $100,000, on $150,000 with us to build team cohesion and ensure that they get from their seat, their Series A or the Series A to the Series B. I'd like to think you can justify that as an investment. And so that's the catalyst. So we start with this list of companies. Who's raised money? And then we use an AI tool called Clay. I think it's called CLA. - Yeah, I have a way. - Yeah, and I don't use it personally. Our team uses it. We take that list of every quarter, I don't know how many companies raise metric out. Five of our companies raise more than $5 million or something in the United States. We feed it into Clay and we say, okay, now I need you to go look on the LinkedIn profile for all of these companies and their C-suite people and see if they've ever posted about an offsite in the past. That's like the icing on the cake is that the biggest predictor of who is going to pay for an offsite in the future is have you already dull long. And then we reach out on LinkedIn, we reach out the email, we reach out via phone for high value leads. We actually have like little under branded coffee bags that we put a little postcard and we drop it into a USPS thing and we nail it to their headquarters with a, like a, hey, skin this QR code to watch a cool trailer video. We sort of throughout everything at this smaller number of high value clients. And we're not trying to cast a super wide net and see what we catch. We sort of like, we know who our ideal clients are. We make a really concerted effort to go after them. Has it, and it worked? It's worked enough. I think we've just scratched the surface. In my perfect world, we would be doing one of these events a month, right? I mean, you were pretty close. You backed into our numbers. Yeah, I said we were doing about a million dollars of revenue at that hotel a year. We did $150,000, four days for that one client. But I can teach just one of those a month. I can increase my revenue by 50%. I think those folks are out there. I think it's just a matter of getting in front of them and mostly convincing people for us specifically to come to a foreign country. If you've got folks in your network who are working with hotels in the United States, the bar might be lower. And I think there's a really neat niche for these experiential properties that you were talking about. Because we're sort of in this fun middle area where like smaller teams kind of go to an Airbnb. And that's very like a self-service at DIY offside. That might be good for like a very small team of like five to 10 people. And then the huge teams are going to have to go to these mega resorts where they're going to get impersonal service. You're going to be just a block of rooms somewhere enough. 500 key resorts in the section in the middle. It's real fun because it's like here, take the whole property. You can do whatever you want with it. If you don't want to DJ, you want to movie night, whatever. If there's no other paying guests here, like go nuts. Because we've worked to Kiela Shouts by the pool and for you know, start growing people into the pool if you want. And so. But I'm still spinning off the numbers. I'm sorry. So I got to go back. Okay. But when my mind won't stop until I just dig, dig a little bit deeper. You just said that you've got this very specific target. And then you like went, okay, so there's 500 of these. Then you went and said, but then we go in, we take that list of 500. And then we scrub it to the ones that have already done it. Right. And then I'm like, okay. Well, that's. That's probably a pretty maybe 25%. I don't know, right? And so I started going, okay, so now we got 125. You wanna do one of these a month. That means that you gotta close one out of 10 of these. And then I'm like, but your whole goal here is to go scale this model in creating all of these. And if it's dependent on this type of situation, that seems like a very, very low number of opportunity to me. - Well, what you're leaving out is it's five or two core. The beauty of venture capital funding is that it just keeps happening, right? So that every quarter, that many more deals have happened. And so we don't have to close 10%. And I think your numbers are generally correct, right? If it's five or two companies, you see maybe a 25% of them are the ones who can add off sites that feels directionally correct. But that's how many new companies come into our pipeline every core. So we really only need to close three out of the 125, not 12 out of the 125. But yeah, it's a risk. If we had a hundred hotels, could we keep them all that full all the time? I have no idea, but I do know that we have a fantastic problem for read out. - Yeah, well, yeah, absolutely. To me, I think it's okay refining from a scale standpoint is going beyond just that one very, very specific niche in identifying where similarities to that. Other than just the venture capitalist, just my thought. - Yeah, no, and you can, and just to be clear, I don't want to suggest that we do core crop sites to the exclusion of other sort of group sales, like weddings and bachelor parties and yoga retreats and things like that. But what we have found is that the corporate offsites are by far our highest margin, the least price sensitive. They're not turning around and reselling this. It's oftentimes not their own money. They just want to get their team down there and not have to worry about it. Because otherwise it's going to be somebody's job that company to spend the whole quarter, 40 hours a week planning some event. So those are our favorite clients from a margin standpoint, but that's not to say that there are other fantastic clients that fall to some of those other buckets. And again, what's fun as we build out of portfolio properties is that certain properties are going to be better suited to certain audits, either based on their amenities or their location or their distance to an international airport or their climate. - All right, well, I'm having all these thoughts that are going, bing, bing, bing, bing, bing, bing, bing, bing, bing, bing, bing. So like, I love Costa Rica and that's amazing. And all the other countries that you have and you're building a great product, I'm also thinking about domestically, because again, I'm fearful of investing abroad. This is what it is, okay? Not everyone has the same sentiment, but that's how I feel. So I'm looking at like, okay, well, I mean, when I scour Costa, and I look at all these cool properties, and I go, the vacancy rate is so low, how do I fill these up? And then all of a sudden, now I'm starting to encounter people that are building these lifestyle boutiques resorts that have this, what do you call it? Experiential things. So it's not just corporate retreats, it's family reunions, it's weddings like you're describing. Like this wellness could be bachelor parties. And so, I don't know, I'm just spitting out like, like potential guests that would book as a group, but what really I keep going back to my mind is, okay, Clay, what can Clay do? And I don't know much about, I don't know nothing about Clay honestly, but what I do know is that AI is getting so good that the idea and the concept of searching social media, in general, whether it's LinkedIn or Facebook or what have you, there's presumably some software, Clay or another one that is gonna have the ability to go and monitor what people are posting about, and then market to those people so that the person that had a family reunion is probably gonna wanna have another one. And the person that went on a retreat for whatever their work or how, like using that concept, I got really excited when you started saying that, because then it opens up a lot more opportunity in areas where there are occupancy issues, but you can counter that with large group bookings. And then understanding how to market towards those people, using technology and AI to be able to identify potential guest group bookings is very exciting to me. Who actually calls these people? 'Cause at the end of the day, the technology gives you the info, someone's gotta close them, someone's gotta pick up the phone and be human and say, all right, our place is awesome. Come and book with us. - Yeah, so I mean, we have a woman on our team, Renewing's Ava, she's French, she's 25 years old, and she's sort of been with us, since almost day one, and I knew her before we even opened up the hotel. And so she falls right through our target demographic, she lives and breathes what we're doing. She has been there to actually fulfill a handful of these corporate off sites and weddings and things like that. And so we have her calling people because she knows exactly what we're selling and she's got a ton of credit bill, she can get people on the phone, and she sort of looks like them and sounds like them and jives with them for life and more specific expression. And generally brings credibility to what we're doing and that we're a real person and not just a platform, right? And she can say, look, if you come down here, like, I'm here, I'm in Costa Rica, I live and breed this, and again, for a price, go back to Bashar's high margin, and if you buy our gold package corporate off site, Ava says to you, I will be there, I'm the safety that I'm, I will personally be there, you will have my WhatsApp number. And if you want laser engraved coconuts with three in the morning, like, I am going to be the one that's going to go do that for you. And so for us, I think that vertical integration, that we're not just a platform, we're not like Airbnb for corporate retreats or anything like that or Airbnb for batch the parties, that when you talk to Ava, you're actually going to meet Ava. If you want to meet the site's staff, we, when the guy picks you up, it's a van with our logo on it and a vinyl wrap. The guy is wearing our t-shirt, he takes you to our property, we control cradle to grave the whole experience. And I think when Ava gets people on the phone and says that, that's really the differentiator that allows us to win business that, like the catering manager at the Weston just isn't going to be able to win. Did you just say cradle to grave? Yes. Oh, that was freaking awesome. Crayed to grave. Did you split that? No, I love it. That's, that was freaking the guest journey, cradle to grave. (laughing) So for investors that have listened to this and been inspired by you and are thinking, well, I would like to invest, bro, I like the idea of owning a piece of paradise in Latin America. The lifestyle seems awesome. The pure vita lifestyle, the opportunity, the financial seem appealing. Like there's definitely upside to go and make some money investing abroad. What are some recommendations that you would give to someone that maybe wants to pursue something that's similar to what you're doing? Yeah, I mean, if somebody just wants exposure to a market like Costa Rica, but doesn't feel like maybe taking a plunge or necessarily rolling up their sleeves, we're actually gonna be kicking off a fundraise for our once-a-bared-a location early next year which structured it with American investors in line, folks who have not done a ton of international investing. So the investment in a Delaware LLC, you just get a K-1. It's a totally passive investment. And it's a great way to kind of get eyes on one of these properties. You get all of our investor updates. Obviously, you get direct access to me and my team. And it's a way to test the waters maybe in a more passive capacity with a lower check size before decided whether or not making a direct investment in a hard asset in a third-world country is something that you wanna do. Yeah, I love that. I think prior to us, Nathan and myself purchasing our own portfolio properties, we have each invested into syndications. And for me, it was a great way to really learn some of the nuts and bolts, get to be a fly on the wall, observe, okay, what do I, what do I, what are the takeaways that I could apply when I go on my own? So for someone that has an interest in investing abroad, I definitely recommend partner or someone that's done it before you're gonna have a whole weight, a lot of mistakes. So if someone wants to connect with you, let's say they either want to just follow your journey or perhaps they maybe they do wanna invest with you on your next fund. How can someone connect with you? Yeah, the best way is honestly just to add me on LinkedIn and shoot me a message there. Okay, so we'll put in your LinkedIn profile in the show notes and you'll probably put in all your other socials. So if someone wants to check out Ounda and see what you're up to, we'll put all the links in the show notes. Yeah, I mean, but one of the things we can do too, we can give a, we can do a little promo code for your listeners. If everybody actually wants to come and check the tires in person, always happy to host folks and share a boozy coconut or a coffee or a beer or hamburger. Yeah. Oh yeah, cool. All right, Bill, well, this has been great. Thanks so much for being on the show for our listeners. We're gonna wrap this episode up of the Hotel Vester Playbook. We are Mike and Nate, he is Bill Graff and we are checking out. We'll catch you again next week. Uh, low hot. (upbeat music)