HIP E77 Tyler Cauble - First Boutique Hotel Lessons

Most people think putico tells are too risky, too complex, and way outside their lane if they've only done commercial real estate. My guest just proved otherwise. He built a $75 million commercial portfolio without ever touching hospitality, then bought a rundown, roadside motel, and Nashville. Pour 10 million into it and open the doors last week. Today he's walking us through exactly what it took, what blew up along the way, and why the rooms might actually be the least important part of making this thing profitable. Let's dive in. The Hotel Investor Playbook. Your guide to building wealth and freedom through hotel and hospitality ownership. Welcome back to the Hotel Investor Playbook. I am Michael Russell, founder of Malama 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. Today I have Tyler Cobble. Tyler, great to have you on the show, man. I've been watching your content for a while, and I'm really excited about this conversation because you've built this $75 million commercial real estate portfolio. Now you've gone and you've purchased, renovated, and you are now operating a Badeco Hotel in Nashville. I'm really curious to hear about your perspective, especially from someone that has a ton of commercial real estate experience, and has made that jump into hospitality. Let's get into it. Yeah, Michael, thanks for having me. I'm really excited to be here, to be diving into hospitality, all things commercial real estate. The hospitality side of things is new for me, relatively so. We just opened up our hotel on April 1st, and I'll tell you, it's been an adventure. That's for sure. All right, so for those listening, we're about a weekend. It's April 8th, as of the date we're recording this. So why don't we start here? Tell me a little bit of what's going on in your world right now. Walk me through what you purchased and what you're experiencing right now. Yeah, so in August of 2021, we bought an abandoned for the most part. I mean, it was still up and running, but you know, you look at this thing, and it was abandoned for all intents and purposes. Roadside Motel, 52 keys, Doric main house in the center. It was kind of like a motor court and five buildings. We shut it down, we started our work on it, and it took us, I mean, we just opened up in April, right? So it's four and a half years for us to get to the opening. And now that was, that was a big learning curve. A couple of things. One, I designed a $17 million hotel, a little bit of my naivete, and starting off in the hotel space building. But I thought it was going to be the primo boutique hotel in Nashville. And winners were like, yeah, let's, let's style that back a bit. After 50 conversations, I kid you not 50 conversations and nose from lenders. I ended up redesigning the hotel, coming back as a $10 million, $10.5 million hotel. Got my financing on the first conversation. That was about the first six months. It took us 18 months to go through permits, which was just absolutely brutal. Nashville is notoriously difficult when it comes to that side of things. I mean, it's grown a lot, and there's a lot of people that want to build here. So that, of course, contributes to it. And then about two and a half years on the renovations. So really excited to be getting the doors open. It's really like a poem springs, meets southern hospitality kind of vibe. Obviously, we chose not to flag it. So it is very much boutique. And that's been a, a new experience for me as well. Typically, when we buy commercial real estate, we're just buying the real estate. We're running it out to other people. We're actually starting a business. We actually had to go through the branding. We're actually having to go through dealing with the management company and the staffing and all the, all the fun stuff that comes with that. Well, let's zoom out a little bit here. I understand that you've got this huge portfolio of commercial assets. You've got hotels now, but you have, before they've self storage, retail, you've got this redevelopment of like a car wash that I want to dig into. That sounds really interesting. There's this massive mill redevelopment. Most people, they pick one asset class, right? They become an expert in that. You're doing the opposite. I mean, there's that expression, right? Jack of all trades, master of none. But how do you answer the person who says you're spreading yourself to thin? Yeah, it's a good question. I mean, if you finish out that phrase and pretty sure it's a Jack of all trades, master of none, but a master of some is better than a master of not, I forgot what the phrase is. But if you actually continue it on it, basically says, hey, being a Jack of all trades actually isn't all that bad. So you still have to have a niche, right? You still have to narrow your focus down. And so I decided to focus on neighborhoods. That was the big path that I decided to take. We didn't want to be investing in multi-family all over the country. I didn't want to be the office guy. To me, like doing the same types of deals over and over again was kind of just boring. It didn't really intrigue me very much. But there's a couple of neighborhoods in here in Nashville that I absolutely adore and spend the overwhelming majority of my time in it. So I thought, you know what, why don't we just start to focus on those neighborhoods? And then whatever we find, the right properties, we just lean into whatever the neighborhood needs. So I was fortunate enough to have a background working for a boutique development firm where we did everything. So to me, we were already working on office retail and industrial round up multi-family. We were building single-family homes too. So I got a lot of wide breadth of experience in that world. For me, I just narrowed it down to the neighborhood. So in a sense, you could say we still are a master of one, right? As we're going into that because I really, really, really study the neighborhoods before we ever make a move. So like when we moved out into Chattanooga, you know, it's about two hours away from Nashville. I studied that market for two years before I decided to actually make a move into that market because I needed to be able to understand what was going on in that neighborhood what the demographic was, who we were going to be serving before we decided to invest in the capital. So you niche down by neighborhood instead of asset class. What's the X factor you look for in a neighborhood that tells you it's ready for one of your projects? That's a good question. We haven't actually expanded into a new neighborhood for about four or five years. We were in East Nashville, we're in Madison, which is the next neighborhood outside of Nashville from East Nashville. And then we're in South Chattanooga. For me, when I was looking at Chattanooga, the X factor there was it had a very similar demographic to the group that we were already serving in the Nashville area. It's skews younger, it's very artistic, it's hip, people are into the cool bars, the cool restaurants, the neat activities to do. So the suburbanites, not really my demographic because we do a bit of a unique project. You mentioned the wash earlier, right? A product like that, which was a car wash conversion into five micro restaurants at a bar, just wouldn't work in the suburbs. We have three parking spots that are to go only. And a lot of walkability. You have to be able to walk and want to hang out, you know, there's 80 seats there for, again, three parking spots. We definitely focus more urban, we focus more towards a younger demographic for our types of properties. And just creating something cool and unique for the property that's not necessarily replicable. Okay, well interestingly, you've taken a pretty contrarian view towards multifamily. I think that you're writing a book and the premise is something along the lines of like, I won't evict single moms, right? You've kind of taken a moral stance that like when you do multifamily, inevitably you're faced, you're put in a position where you may have to evict someone who's "Can I be without a home?" And so I want to push back a little bit here because you're, you know, you avoid multifamily for moral reasons, but also because of some of the risk that's involved with it. That hospitality is arguably just as risky right now. How do you share your pessimism towards multifamily with the fact that you just bet what $11 million on a hotel? Yeah, that's a great question. Well, and I think that what we could deliver on the hotel side is very different. Most multifamily projects for the most part, I know there are unique operators out there. If you want to do something really unique and different, it's really tough and it can be really, really expensive and oftentimes you don't get the value back out of it. The nice thing about having a hotel is that it still operates in many of the same realms as what we're already used to. Yes, now we have lodging. We have a bar, we have a restaurant, we have a pool club, you know, like a membership club, so it operates very similarly to commercial. The biggest thing for me with multifamily, I just don't think that the returns are there. It's for the most part, to me, not worth getting out of bed for. There are too many investors have gone after multifamily in the last decade, give or take, and compressed cap rates to a point and also renovated these assets to a point where there's not a lot of value at left. I'm not here to just buy something to get 4, 5, 6% cash flow and then you know, we can raise rents enough in the next five years to be able to get a 12 to 15, maybe 18% IRR for our investors. We like to be able to have direct control over those inputs from day one. But the biggest thing, honestly, is kind of what you mentioned. I mean, with the book, yeah, I won't evict single moms and other musings about commercial real estate. It doesn't matter how good of a person you are, which I think is very important as landlords in real estate. It doesn't matter how good of a person you are, how great of a landlord you are. At some point, you will inevitably come across a scenario where, of course, this is me taking it to the extreme. You've got a single mom with two kids. What happens if she, all of a sudden, loses her job and cannot afford to pay rent? Are you going to do the right thing for your business and evict her and kick her and her kids out into the street? Or are you going to do the right thing morally or for her, which is to be a little bit more lenient on your investment, which means now you're not going to be making any money and possibly losing money on that deal. That's a quandary that I just don't ever want to find myself in. And so I just very intentionally avoid that. Well, I agree with you. If we kind of revert back to the first point you're making about the competitive nature of multifamily. There's so much information that it's very easy to evaluate from a data perspective, what a one-bedroom will rent for, two-bedroom will rent for. When you compare that to high-end, you'll see that. hospitality number one there's less competition, but number two it is more difficult to determine what you're going to be able to deliver from you know an ADR perspective or bottom line ultimately what the N.O.I. is going to be how did you take your experience to date with some of these different value-ad opportunities and with confidence communicate to your investors that this hotel will be profitable with all of the variables and not a lot of experience to date in hospitality, how are you able to determine hey, this is going to be a profitable enterprise? Yeah, zero experience. So I mean, I didn't have a tracker in hospitality outside of like I owned a bar Mm-hmm in one of our properties at one point. So biggest thing one I'm really good at finding deals So I knew that just by buying this if we just didn't do anything with it We just sat on it for five years. We'd make a lot of money, right? We bought it for three million. It was worth about four million dollars a day that we bought it So right off the bat we had a pretty decent amount of equity already built in second thing I did which I highly recommend anybody that wants to get into the hospitality industry or any aspect of commercial Real estate for that matter I brought in an industry veteran that has 30 over 30 years of experience in the hotel industry Right, he's got a handful of hotels very successful in this world and this realm And so I was able to lean on him for his track record when I was going to the investors like hey guys I don't know what I'm doing. I have an idea. I know this neighborhood incredibly well And I know that we can buy this at a deal and renovate it at a deal But my partner here he's the one that's gonna bring that hospitality experience and really help us get this across a fetish line And and that was really all it took even people just want to see that somebody has some gray hairs in there That has operated and done these types of deals before and so that's how I felt confident doing it I've always leaned on more experienced partners for almost every single deal that I've ever done Right, I mean I still have mentors to this day that I'll call and say hey, what are your thoughts on this and it makes all the difference in the world Is your going out and doing this stuff and it also makes sure that the weight of the world is not 100% on your shoulders Mm-hmm. Yeah, I think that's great advice. So let's dig into this a little bit So this is called salt ranch, right? You said you bought it for was it three million dollars that was the acquisition cost Right, okay walk walk through the vision here. Oh actually you know what I want to understand the capital stack So you raised what four million dollars and you've got roughly seven million dollars in debt What does that debt comprised of currently like is it hard money? Do you have a bridge loan to have you placed permanent financing? Where are you currently out with the debt? Yeah, so it's actually six million dollars in a senior loan and then about one and a half million dollars of partner debt So we decided we ended up with with tariffs construction cost rising and interest rates going up We ended up a little bit over budget compared to where we thought we were gonna be so we've got the partners just threw the money Van to it and we we financed that piece so it's pretty well sad I mean today now that we're open we're exploring refinancing options Because it would be nice for us to get that part of debt back out of the deal We would still have a very secure loan to value for a bank to come and refinance it at seven and a half million because it's Valued at about ten and a half eleven today There's actually a comp down the street that's gonna sell that I think will push us a little bit over that which would be wonderful and then We're expecting to be break even on the operational front and the next two months largely because of the pool club that we have and the F&B offerings that we're gonna have there simply driving Alcohol sales and then we expect the the rooms to be fully up and running 60% occupancy give or take which we're expecting for our Establication a year one within the next six months. Yeah, I mean it looks it sounds like a really cool play How did you structure the equity split with your investors is this a 70 30 or what's the split? Yeah, so we did a true syndication You did a 6% preferred return a 60 40 split with the investors so we took 40% I Traditionally do a 70 30 you ever take depending on the deal depending on the market the reason that we did a 60 40 on this is because we knew that We were going to have to come in and run a business We were going to have to create a brand. We're gonna have to operate this in a totally different way And so investors actually had no problem with that right then you okay, well if Tyler and them are coming in They're renovating a deal. They're just leasing it out to triple that tenants They get 70 30 but Tyler's actually gonna have to create this brand and it's the management company really push the the event sales It's stuff like that for really growing what this could be and yeah, they were fine with it So we don't take a salary by any means, but we were able to justify that it is shall work with the equity Hey guys if you're getting value out of this conversation Do me a favor and take 30 seconds right now and leave me a review on Apple podcast or Spotify It literally takes half a minute But it makes a huge difference in helping other hotel investors find the show. Okay now back to the episode I mean, this is a really important point that you're bringing up that coming from a background in commercial real estate You know 70 30 split seems reasonable. There is so much work with hospitality that it does seem reasonable to Be compensated appropriately and you know, you took the stance of getting more equity But some operators syndicators for hospitality they're gonna charge it up front in the terms of acquisition fees They might charge asset management fees like are you have you charge those fees as well like how are you keeping the lights on basically to pay for everything while this Acid could stabilize yeah, I've built my entire business around not having to depend on any one deal to keep the lights on Which I think is incredibly important I've got a commercial real estate mastermind the serious accelerator and one of the first things that people ask me is like when can I quit my W2 And I always tell everybody don't quit your W2 even if you're making 10k a month from your W2 and 10k a month from your passive investments Keep going right until you like either really hate your job so much you can't stand it anymore or you're ready to retire Because the second that you leave that active income you're investing becomes exponentially more difficult One banks aren't gonna like you as much but two you're essentially cutting your income in half right if you're making 20k a month with Half of it passive half of it active and now you drop the active side of things right so actually still run my brokerage Right we are still brokering deals. I'm very selective on the clients that I take on But that's how I keep the lights on there. We've got the mastermind. I'm very very very involved in active in that So that takes up probably actually a majority of my time each week because I'm working with all of our members And then you know YouTube does a little I mean I think YouTube makes like a thousand bucks a month It's it's not much and then of course I've got a couple of I've never really invested for cash flow So I don't have a ton of cash flow coming in that's why I was able to grow my assets to 75 million as quickly as I did I didn't invest for cash flow. We invested for value added equity appreciation And so I do have a handful of properties that are throwing off cash flow and so it's really A combination of multiple sources when we get into a market like we're in today Where there's a lot of uncertainty out there maybe debt is willing to to come into your your assets But equity is a little more hesitant or you just can't find good deals We are not dependent on getting a deal done to make income and so that is actually allowed us to have a lot of flexibility a lot of freedom And never put ourselves into a situation where are we closing this deal just because we need the money or Reclosing this deal because it's an hour best interest in our investors best interests. Okay, but do you guys charge an acquisition fee? Oh, yeah, yeah, absolutely. Of course. Okay. Yeah, what's one percent the acquisition? Yep Now what one percent seems low to me honestly. I think in most hotel deals and I'm looking at it's 4% And you know you've built this whole ecosystem over years But for someone listening to this that doesn't have a mastermind doesn't have a property management company doesn't have you know 75 million dollars in Assets that are out there doing what they do these acquisition fees that they're big Motivator for folks to go and they're dependent on getting deals done I'm curious from your perspective as a syndicator what are some of the red flags that you might notice that Passive investors should look for in a sponsor's fee structure before they invest. Yeah, I mean, I think I think the acquisition fee is actually pretty important and Again, I'm not coming from the hotel world so it could be totally different market there right I'm coming from the commercial side of things where like one to two percent is pretty typical So on the commercial side if we see anything over two percent I would say hey, that's a red flag because we don't want The operator getting too incentivized just to close on a deal We want to make sure that they are equally as determined to keep the deal going now You can make the argument there of well, they're just getting a fee so that they can keep the lights on They're the ones signing on the debt right there's still a ton of rest There's still a ton of of interest in making sure that the deal is gonna work I think looking through their numbers Making sure like don't just trust what some of these numbers are actually go out and verify it If you want to dig in a spreadsheet spine, I mean hardly ever having investors actually want to dig into our spreadsheets And I really try to avoid that because if you're not familiar with how we underwrite or our specific spreadsheets It's gonna be a mess and I'm gonna end up having to teach you how to use a spreadsheet in order for you to pick me apart But there is plenty of data out there I mean if you're investing as an LP in the hotels get a star report, right? Ask the operator for the star report that way you can actually dig into the data that they used to come up with their underwriting So that you can see okay, well if they're underwriting an AER of 185 But all of the comps that that they chose is 165 then you can ask the question Why are you $20 higher than everybody else over here? What makes this deal so much more special that you think that you'll be able to get five or seven percent more on your nightly rates Right, it's it's worth digging in and asking those questions So those are the biggest red flags for me another one and this is probably just me I'm hyper picky if I see a typo in an offering memorandum I immediately drop it. I will not invest in it because to me I'm like okay if they miss a typo What are they gonna miss on this project? Right and I know that's so small But sometimes it's those little things that you got it over the years I've realized, okay, if somebody has a typo in their OM, I've seen plenty of them. They're typically not gonna be the best most detailed oriented operator. So that's very important to me. I mean, I have invested as an LP in deals, and so I combed through them. Having the operational experience being a GP certainly helps. There is a different beast, being an LP and analyzing somebody else's deal. - Yeah, well, on that note with details, right? I'm very detailed oriented. It's a blessing and it's a curse. For me, I'm a little bit of a perfectionist. So moving quickly is challenging for me because I've gotta have everything perfect. And some people are at odds with that because it's like, look, money loves speed and there's a whole philosophy of that. But that's a tough balance for me. Speaking of details though, I wanna put you on the spot a little bit here, right? Because you've got this project, the salt ranch, and if you go and you look at the rates, all this rates, somewhere in the ballpark, what, 150 to $240 a night currently. So if we're generous here, we say, look, the blended ADR is 200 bucks a night and the goal is to stabilize this at 70% occupancy. We're looking at a rev part of about $140 a night and there's 48 keys, right? - Right. - Is that correct? - Yep, that's what we ate. - I mean, I just, I did the math and look, you're projected at that 70% occupancy in ADR to be to do about $2.5 million in revenue. And most hotels are gonna run about a 30% NOI, especially those that have third party property management. So that's an NOI of just over 700 grand, it calls $750,000 somewhere in that range and you've done the math at an eight cap, this hotel is gonna get valued at 9.2 million on a cap rate basis. You're $11 million all in, right? So right out of the gate, that's like, well, how do we make money on this, right? From a cap rate perspective, hard to justify, but long term exit strategy, is this hotel in Nashville gonna be worth $15 million, $20 million? Like, what is the plan for this where it actually makes money for your investors? - Yeah, that's a great point. I love that you ask that, right? Because when you're in hospitality, if you're only counting the rooms as your revenue, it's gonna be really hard for you to make money, right? And it had this discussion actually internally with our team last night, which is, "Hey, the rooms will come, the rooms will be what they want to be." But what we want to focus on is the F&B in the events. So we have something special with this property that a lot of other properties don't have, which we have a 7,000 square foot pool deck, right? We've got a second bar that serves the pool exclusively. Oh, our projections, and this is according to my management company that has over 100 boutico tells across the country, I don't, again, I'm not the guy, right? So I went out and I interviewed 25 boutico tell management companies, and it down to five had in-person interviews and then selected this group. So they run bars all over the country, even down in the Caribbean. We're projecting over a million dollars a year in F&B sales alone. We're projecting another $150,000 in pool club memberships. So that doesn't even start to touch on events, because we sit on two and a half acres. You have a historic, be gorgeous main house. It was built in 1824. That we've actually exposed the original wood floors, the original brick, all the original case work. It's absolutely stunning. And so we're projecting somewhere between, depending on how far we decide to lean into the whole wedding thing. You know, another $500,000 to a million dollars a year in advance. So 100%. If we were just leaning on the rooms, this thing makes no sense at all. We should sell it today, cut our losses, and walk away. But when you start to package up all of the different revenue streams that you can have within these hotels, that's where it starts to really start to blow it out of the water. So it's almost like, yeah, it's a hotel. We've got rooms, but it's also a wedding venue. And it's also a pool club. And there's so many little things that start to add up. Like when we were talking, this was a couple weeks ago, I had my F and B director in town. And he was like, hey, what do you think about having a water bottle program in the rooms with a high end couple of bottles of water? I was like, yeah, sure, why wouldn't we do that? He was like, well, with the hotel of about this size, we could see about $20,000 a year in revenue just in water bottles in the rooms. I was like, yeah, of course, let's do that. So it's funny to me, like, that's not stuff that I as a commercial guy think about. I've never been in this world. I've never would have thought like we could do $20,000 in revenue out of water bottles a year. Like what else can we kind of do and add and what other revenue streams do we have on this property that could help get us to where we need to be? So when you start looking at the margins of adding in the F and B, adding in the pool club, adding in the events, that's when we start getting to evaluation of 15 to 20 million. - Well, so adding in all the answer to the revenue got it. And so what does the exit valuation, like what exactly, where is the target? - Yeah, what is the exit value? That's what I'm trying to ask you. - Yeah, so we're aiming for about an $18 to $20 million in the next year's exit. So we're expecting that really by year three, once we've hit stabilization, we're expecting somewhere between 40 to 60% occupancy this year. It's gonna take us the entire year for us to really wrap up our events. Fortunately, Nashville is a wedding destination. It's like top five in the country. So most of the venues are really booked out. So we should be able to start getting events, hopefully this year, but if not selling them for 27, and then building that up, getting that business going. So by 28, 29, that's what we expect. I mean, look, in an ideal world, I refinance buy out all of my investors and I'd love to keep the place. But I'm also realistic in the sense too, that like, hey, it might just make more sense for us to just sell it and move on. - Yeah, well, I think that dovetails well with your investing advice in general, that you don't buy for cash flow, right? I've heard you say this publicly that, I'll pull it up exactly, but I believe that you said that most real estate investors were taught to buy for cash flow first, but if you invest for cash flow, you're gonna stay cash poor, is that right? So you gotta find an exit. That's where you make the big bucks, and that applies to, for any investing thesis, whatever acid it is, I think it applies it. Look, I appreciate you walking me through the numbers there. The thing about hospitality is it's less certain. So there is greater upside, but there's also greater risk, and that's just the arena that we play in. - Look, I appreciate you asking the question, right? That's a tough question. And if I didn't know what the hell I was talking about, you would have just totally ripped me apart right there. But I think that's important to do, right? I mean, if we're gonna talk about the ups and downs of hospitality, there are a lot of variables. I'm telling you, again, coming from the commercial side of things, there's a lot of stuff that I never thought about. I have learned an immense amount over the past few years, and I know I still have a ton to learn. I'm by no means an expert, but I love the U.S. that 'cause I'm sitting here, I'm like, man, I love getting asked challenging questions, is it, it makes for a better discussion? - Well, okay, so sometimes, you know, we talk and we celebrate all the glory and hospitality, but I think it's important from a learning lesson also discuss, okay, what are some of the challenges? What are some of the surprises? And what was the biggest surprise, maybe cost, that you had during renovation, that was unexpected? - Oh, man, it's everything. And look, the main house was built in 1824. You could imagine what had to go into make it, and unfortunately, like structurally, it was totally fine. And everything was great. But we basically had to fully gut and renovate it. We ended up having to fully gut and renovate the motel buildings too, which we had not initially anticipated. So when we got into the first motel building, we started ripping out the drywall to replace it. While when you do that, you expose the electrical, right? And fortunately, we did, or unfortunately, depending on how you wanna look at it, but it was outdated wiring, and it was basically a taking time bomb as to when that was gonna cause a fire, right? So we had to fully replace the electrical. And we're expecting and expense like that. We knew that we were gonna have to do some plumbing work. We didn't think that we were going to have to fully replace all of the plumbing, right? Again, we had cast iron. We knew that we were gonna have to do some work there, right? So it just ended up being bigger. That's why you bake in a 10% contingency into your hard and soft costs, as you're going into projects like this, because that kind of stuff is guaranteed to happen. That contingency is not something that you're gonna put in your pocket at the end of the day. You're going to spend that money. So we're going to the process, I mean, another big thing, like tariffs that ended up costing us a lot of money. We had plenty of furniture that we had custom design and custom made overseas that ended up costing us $150,000 more just because of tariffs. Like couldn't talk about worse timing for that to have happened. But it is what it is. And so it's challenge. - Well, you guys know that there was a partnership long, right? I presume some of these challenges, some of these costs that you and Conver, they were unexpected. And so you chose the strategic path of the partners loaning money to this indication. Why that route instead of going and raising more money from investors, just raising more capital to cover the shortfall? - Yeah, I mean, I would have loved to have done that. And we tried, but it's a weird market out there right now, man. A lot of, so if you're an LP, chances of you being in a deal that has not had a capital call already, pre-slip, right? Chances of you being in a deal that isn't making distributions today, pretty high, right? They're all, you're already seeing, and we were kind of late to the party, right? We'd certainly weren't the first ones. We went to our investors back in, I think, October, November. And we said, "Hey, look, we need to raise more capital. We don't want to do a capital call. We'll offer you partner debt." Anybody that wants to jump in and take this, here are the terms. It will get paid back first. It's gonna, you know, sit on the capital stack ahead of the preffer returns, ahead of any partner returns, et cetera. And that was the only way we were really able to do it. I don't like to do capital calls. I don't want to have to force somebody to put money into something and dilute it. We always like to have the option. And so it was just a much cleaner way of us doing it. Not ideal, 'cause I still ended up being the overwhelming majority of the cash that went into it. I think that's a very important thing for you to keep in mind as well. If you're gonna go out and do your own deals, make sure that you have the cash to back up anything that happens to the process. Because sometimes, sure, you can go to the bank and you can, you know, get a refinance or get an extended line of credit wherever that is. But sometimes you need to cash a little bit faster than that. And so, you know, fortunately, especially on the syndication side, that's why you want to keep your cash. And yes, we co-invest with all of our investors. But yeah, we could have gotten into some serious trouble if we hadn't done that. Yeah. Well, you know, you come attention a little bit about the comment you made as far as tariffs go. Because whether it's a hotel or any asset class right now, I think that this is an important factor to take into consideration. And there's so much uncertainty, right? Given the current political climate right now as a developer with active construction projects, let's talk about how tariffs are affecting your raw material costs right now. Like, are you seeing it on steel or lumber or fixtures or how is this changing how you underwrite? Let's say you're next deal. Yeah. I mean, fortunately, like, we've actually decided to put all new projects on pause. If something comes across our desk where it's incredibly compelling, we want to jump into it. But there's too much uncertainty like we have seen it across everything from steel to lumber to concrete fixtures and furniture, especially right? Because most of that's just not manufactured in the US, right? Like it has to be shipped in. I mean, my wife, you know, who was the designer on this project? She did a phenomenal job. She's ordering rugs for the roofs or for whatever, you know, FedEx is sending her a bill for the tariffs, right? Like totally separately from the purchase because FedEx ended up, I guess, having to pay the tariff and then they make us pay it, right? And so there's just so much uncertainty that, you know, today, I think if you're going to be underwriting a deal, I would bake in honestly like a 15% contingency, if not a little bit more, because it's too tough to quantify. Tomorrow tariffs could go away. I think that's what's causing a lot of Harper and for most investors. They just don't know. They could also double tomorrow. And so it makes it really tough for you to plan too far ahead. So what we would be doing if I was actively going into a project today is having the conversations with our contractors about locking in pricing on materials. When are they going to be ordering them? When can they guarantee the price for us? Should we go ahead and buy it and store it today so that we could just avoid any of those issues? Yeah. I've been experiencing this as well. I've had a couple people make comments like, oh, he hasn't bought anything in a while. And it's not for lack of effort. I've gone under contract here multiple times, but there is difficulty in pricing out, not just lumber and the renovation cost, but to your point, where do we source all these materials? Most of them are going to have tariffs on it. And it's so difficult right now. So this is a very trying time from a development side, but also from a lending side. Let's talk about that for a minute. Are you feeling like right now, just across your real estate holdings that banks are tightening up on things like construction loans? Is there uncertainty making it harder to get deals done? We're actually not seeing that. I think seem to be more proactive than they have been in recent year, 12 to 24 months. They seem to, I mean, I'm getting calls from bankers again. They're calling me saying, hey, what can we lend on? Which is kind of nice because it's been the exact opposite for the past two years of, you know, just trying to find any lender that will do anything because most people are saying, hey, our buckets are shut. So for whatever reason, whatever's happened in the past couple of months, that's starting to turn around, which is really nice. Interest rates are starting to come down. We've got clients that are getting the high fives now. Are they financing, which is just incredible to see. It's funny. You know, I never thought that we'd be celebrating a high fives interest rate again, but, you know, here we are, which is nice. But honestly, it's equity. Today, it's 100% on the equity side. So we can, we can certainly get the debt. That's not a problem. I am more uncertain now. And I've got over 2000 people on my investor list. I'm more uncertain now about being able to go out and get cash from them. Then I am about getting the debt. So I mean, if that tells you anything, I just think that people are wanting to hoard cash right now. And it's hard to buy them. Yeah. Well, on the flip side of that, though, for investors or potential investors, there are some silver linings here, right? We have some tax legislation that is beneficial. We've got bonus depreciation is back. So, you know, some of these things, are you finding that there's, you know, any tangible benefits from some of these changes that have occurred over the last year or so? Totally. I mean, look, the bonus depreciation is huge. If somebody's having a big capital event, let's say they're selling their company or they're selling out of the stock market because they don't want to deal with that anymore, I mean, the bonus depreciation is massive for them, right? To be able to buy an asset and depreciate the hell out of it, right? And of course, it depends on which asset cluster you're going into will determine how much you're actually able to depreciate. But absolutely, I mean, that makes a huge difference. That's when you start seeing bigger firms like higher network individuals, I would say, are taking advantage of that. I'm not seeing a lot of it on the smaller end, but it certainly doesn't hurt, right? I mean, that should be a big consideration. Like, we underwrite the tax benefits in every single one of our deals. We don't include that in our return metrics because I don't know your tax situation. You don't know mine. I don't know Sally's, right? It varies from investor to investor, but I like to at least look at it and get an idea of what a 37% tax bracket would look like. Yeah, absolutely. I do also want to pivot back to something that you said that caught my attention as well, which you mentioned that you interviewed 25 different hotel management companies. That's crazy. That's a lot of work. I want to know what are the right questions to ask a hotel management company and what ultimately made you pick the operator that you went with? Yeah, it's a good, I mean, it's probably excessive, right? That's probably way too many property management companies, but I wanted to do right by my investors and make sure that I was really making the right choice because that's so important. I did not want to run and manage my own hotel. I wanted to make sure that we had the right management partner. Look, the first five interviews were really me figuring out what questions am I supposed to even be asking? I think the biggest thing for my perspective was what do you currently have in your portfolio that is just like this? That's really important. You don't want to get somebody that says they manage boutique hotels, but it turns out to be all flagged, right? Because that's a totally different world. Yes, you can have a boutiqueed flag hotel. It's night and day different from what we're operating here. It was also really how they structure it, right? How everything looks, what are the past through fees, what are we paying for, what are they going to help us with? All of that really, really, really matters. And then at the end of the day, getting the start reports, getting projections from them, hearing from them what their approach would be with this property specifically. And I'll tell you this, honestly, what really sold me on my company that we ended up going with, which is Remington Hospitality out of Dallas, Fort Worth, was within a week of our initial phone call going through this deal. Their team was in Nashville walking the site with me. All flew out here to make it happen. And I just thought that was impressive, right? Because if you're in the hospitality world, it's all about service. It is all about the in-person impressions. And I think that they really understood that. Well, yeah, that's incredible. Thinking about managing a hotel is so much work. And strategically you made the determination that you were going to outsource that. And that makes me think about all the stuff that you have going on. Running a brokerage, you've got a traditional property management company, development firm, you've got this mastermind, you've got this YouTube channel, and a podcast, right? You've got all this stuff. And I proved you say that you are not fond of managing people. And so when I think about all the actual systems and the tools and I keep off this from consuming like your entire life, like how do you delegate this stuff effectively? I mean, one, it's like especially on the hospitality side of things, we interviewed a bunch of people and made sure that we were jumping in a bed with the right group, right? That made a huge difference because whatever we've had, shoes with employees, they have 100% handled it. I haven't had to get involved. They've taken care of it. They fixed it and fast too, which is really good for me because again, I don't have to step in and deal with it, right? We had a bartender not show up on Monday. And my GM was in their bartending. We had another bartender there on Tuesday. Didn't matter, right? Like didn't miss a beat, which was really just phenomenal. I also don't hire anybody anymore without having my wife sit in on the conversation because she is really good. I have phenomenal at reading people, understanding who they are. And then I mean, honestly, within the first conversation that I have them with them knowing what their shortfalls are going to be. It like surprises me how good she is at that. And I had to learn that lesson the hard way for it saying, hey, I wouldn't work with that person and I decided to do it anyway. And it turned out to be exactly as she said. So I was like, you know what? I'm just going to trust her. Really having her as like a chief of staff has been phenomenal because she runs and manages the team. And I get to go do the stuff that I feel are most productive or the highest best value for what I need to be doing. What only I can do. Yeah. So let's say someone is scaling up from short to rentals and maybe they've been doing all this stuff themselves. It could be any form of real estate, but the point is you've got all these things that you're responsible for. If someone wanted to delegate more and do less themselves, like who would your first hire be? Who would you recommend to hire first? Really just a virtual assistant. I mean, if you go through a placement company and you really find the right person like my assistant's virtual. So if he is, she's down in Mexico, she's phenomenal. Like, she's one of the best employees I've ever had. And her working remotely doesn't have any sort of impact on the quality of work, the timing of her work. And Mexico is cheaper than Tennessee, right? So it's far more affordable. And I'm getting probably above quality work out of it. And now she's paid very well because of that. But that would probably be my first hire. Find somebody that can help you manage your calendar and help you respond to emails and stay on top of the tasks because you're busy going out there trying to get the next year or trying to sell whatever you're trying to sell. You need somebody that can kind of help keep you organized. Yeah. Yeah. Definitely. And now that you've got experience with hospitality and you have experience with all these other asset types, I want to talk a little bit about the these adaptive reuse projects, particularly for me personally, I'm interested. We just had on the podcast a couple of weeks ago, Ryan Sadek from Sage Investments and what he's doing is he's converting obsolete motels into studio apartments. I mean, you took an obsolete motel and you turned in and you went to the boutique hotel route, but I don't know what's your take. I know you're somewhat biased on multi-family. I get that, but what's your take on the motel to apartment conversion model? You see any advantages or what are the pitfalls that you see? Yeah, I love it. We were actually brought into consult on one of the first motel to apartment conversions in Nashville. It's called the Sohana. It was done back in 2020. It came in, helped finish up the development on that project, and then my property management at the company at the time, we actually managed multi-family. We don't need more than goodness. But now we just focus on commercial. We got about 4 million square feet of commercial, but back then we had a bunch of apartments. And we signed 126 leases in six months on that apartment complex. So there is a massive need and there are a lot of run down motels out there that could use a conversion. The biggest issue that we see today, and maybe this is a Nashville thing, I don't know, but several projects have been done at this point. I mean, probably maybe half a dozen, maybe more. They've gotten so popular that the motel owners know that they should charge more for the doors. When you're paying $100,000 to $120,000 to $150,000 a door, it doesn't make sense to convert it to affordable housing. The biggest issue is making sure that you can buy it at the right price because it's going to be expensive to convert. You have to bring it up to modern day code for a residential domicile because you're doing the change of use, which means you've got to completely bring it up to code. That's what I'll keep in mind. But I love them. I mean, we have an affordable housing shortage in this country. We need more affordable housing units, and that's a great way to deliver that. What other adaptive reuse opportunities are you seeing that are out there right now that you think are maybe underpriced or overlooked? Well, let's throw office out the window. I think that that's overpriced, right? It's definitely overrated. Converting office space to anything is very expensive. For multiple reasons, I mean, what if you want to talk about converting office into multi-family, for example? But you know, everybody's been talking about that for a while, but you're not seeing a lot of these projects coming out of the ground for a reason. They are typically a central core type of building. Your elevators, your bathrooms, everything's in the core. But if you're an apartment complex, everybody needs their own bathroom. So if you think about the cost of just expanding sewer to every single one of those potential suites, it's a nightmare. Now, if you want to do hostels or if you want to do shared bathrooms, right, like dormitory style living, that's very easy conversion. You can go and do that. It depends on if your market actually wants that. In terms of other conversions, you can see some of these single and two story office buildings becoming flex space, right? If they are laid out, right, they can become flex space. I'm going to partner down in Atlanta. It's doing a lot of that. They're buying up these single story office parks. They're converting them into flex spaces and doing really well with it. That's really all we're paying attention to today in terms of like what's on the radar for us or what's most interesting to me. But what I like to tell everybody is like at the end of the day, a building is just a box. It can literally become anything that you want it to become as long as you don't have to re-zone it. I guess you could go through re-zone if you want to do, but it's a big pain. Yeah. Keep that in mind. You can put anything into these spaces. It's just a matter of money. You've got to find them. What's the most efficient use of capital? Do you mind sharing what you got going on with this mill project? Because from a high level, I saw that it's a lot of different things all at once. Walk us through what it is that you're working on. Yeah. It's a lot, man. 49 Building Project out in Chad, just out of the Chattanooga in Rossville, Georgia. Chattanooga MSA. 10 minutes from downtown Chattanooga. It's about 1.5 million square feet. It's a former wool factory that actually produced like all the blankets for the soldiers in World War II. Pretty cool. So, we bought it. It had some tenants in place to help us break even in cash flow. We are slowly going building by building, finishing it out and bringing it out. We got it at a great price. It's $3.5 dollars a foot giver take, which we had to use a such a massive project. We've got to invest a lot of money into it. So, on the verge of opening a 350 unit self-storage facility, I've been waiting for six months to get my power from EPP out there. It's just been a nightmare. I'm trying to get that. But it's done. It's sitting there. It is ready to open the doors tomorrow. We just got to get power. Once we do that, I had to run sprinklers to that building. Do all new electrical, obviously. And all new HVAC. So, we'll just expand that a little bit. Start adding some flex space. So, there's a lot of opportunities there that's really phase one. Phase two is when we start to get into more of the lifestyle play. It's a 32-acre campus. We really want to create a live-work play atmosphere there. And so, that's when we'll start adding in restaurants, bars, retail, shopping, all the fun stuff. Awesome. Who's on your team helping you with all this? What does your team consist of? So, I have an assistant. I mean, really like an apprentice that works with me on that project specifically. I have a property management team that operates. So, we've operated about 4 million square feet of commercial between Nashville and Atlanta. So, they help run a lot of that. I've got a brokerage team within that property management company as well. So, they help me with the leasing. My wife helps me with a ton of stuff. I've got a team here in Nashville as well. Two employees, really. So, very, very slam. I try and keep it slim. I mean, honestly, we run things as efficiently as possible so that I don't have to have a lot of overhead with a team. Because nowadays, especially with AI, you don't need a big team to do things anymore. You can figure it out in your own. Yeah. That's a really important lesson. I think we learned that we had the cost of labor being what it is. We're building a team and it becomes difficult to scale. The more efficient, the more lean you can be. I think you're demonstrating that. Particularly because you're contracting a lot of the workout, right? You're hiring specialists, independent companies that can perform the work for you. I think that's really good advice. I want to end this episode on a note where I noticed a lot of your YouTube videos. Well, first of all, hats off to you. I love watching your channel. If you have any. I tuned into YouTube and watched Tyler like do so immediately. It's great, great content. There's a lot of advanced stuff in there, but there's a good amount that also cater towards folks that are looking to just get their start. Maybe they have experience and residential, but you provide a lot of insight and a lot of information that can help a beginner investor get into commercial real estate. Right now, let's say for the person listening to this, that maybe I was a hundred grand saved up, but could be terrified of making that jump from residential into commercial real estate. What is the single most important thing they should do? What advice would you give them? Yeah. So with a hundred grand first set aside 50 of it and invest in yourself. Go to conferences, join masterminds, do whatever it takes for you to fully learn. Or there's no better dollar that you will ever invest in terms of the return than in your own education and making sure you know what you're doing before you get into it. So I know some of you are seeing there going, oh my gosh, 50 grand. But I could get a 15% return on that. I promise you you will get a much better return on every dollar thereafter if you actually thoroughly understand how to do this the right way and you make the right connections. Right. That's why I love going to conferences. You're going to meet a lot of great people. You will find mentors. You will find people that will help you get these projects done. It's going to make your life so much easier. The other 50 grand, call Michael and invest in his deal. Make him give you all the reports and learn how somebody like him runs his projects. I mean, look, you're not going to learn everything by being an LP, right? I mean, you're not going to be able to just give Michael the money and then go sit in his office and bug him all day, right? He's got to work and make you guys money. But being involved, seeing how the capital raising process goes, joining in on those investor webinars, hearing why they're interested in this deal, listening to the updates or getting the email updates quarterly, going and touring the properties. All of that stuff will start to help you wrap your mind around how this works and then hopefully you double your money on that investment. Now you're back to 100 grand. You put that in somebody else's deal. Now you're at 200 grand, just 10 years down the road. You keep it growing from there. Unfortunately, unless you have the ability to raise capital, one to 200 grand is just not going to cut it, right? You have to be able to go out and raise capital. And if you're going to do that, then investing with somebody like Michael or with somebody like myself would be very valuable because there's a chance that we might partner with you on these deals. Or that you could go out to these conferences, find somebody that you could partner with, lean on their track record. I mean, when I first got started, I had years of experiences of broker, but I'd never done a deal. I brought in a partner that had over a thousand apartment units that could write a check for the entire deal, including renovations and not sweat it. And I was able to lean on that to raise capital, to get the loan, to do the renovations. Now he got the line share, but I got the track record and I got the experience. And that's really what I'm out of the most. That's what I would do. Love it. How can our listeners stay in touch or continue to follow your journey? Michael, appreciate it, man. Thanks for having me on. So on YouTube, it's just @tylercobble. Type that in the search bar. I'm sure it'll pop up. My Instagram is commercial in Nashville. There's underscores as spaces in between each word. That's where I'm most active. So yeah, go follow me there. Yeah. Tyler, man, this has been awesome. This has honestly been one of my favorite conversations. I think that big takeaway at the end there that you don't have to have necessarily the experience to get into commercial real estate. You do need to have the intellectual honesty. You got to bring in partners you do and you got to have a ton of resilience to survive when things go sideways. So I appreciate you coming on. I love the fact that you're an open book. A link for everything you shared will be in the show notes. So thanks for tuning in everybody. We will catch you again next week. Aloha. (upbeat music)