#276 - Jake Wurzak - Founder & CEO of DoveHill Capital Management & President of Wurzak Hotel Group - Building a Hotel Empire

Chris Powers: Jake, welcome to the show. 

Jake Wurzak: Thanks. I'm happy to be here. 

Chris Powers: Yeah, it's been great getting to know you over the last couple of years, and I enjoyed our breakfast this morning.

Jake Wurzak: I did too. 

Chris Powers: All right. Jake is a master of hotels, so we're going to talk a lot about it today. But a fun question to start would be, you were in the hotel industry last night. You stayed at a fabulous hotel in Dallas. When you walk into a hotel, how do you experience it? Like what are the things that you start noticing?

I know what I start noticing when I get there, but what if someone who owns many hotels starts looking for them as soon as they walk in?

Jake Wurzak: You're going to put me on the spot. We didn't say the name of the hotel. 

Chris Powers: You can say it if you want. 

Jake Wurzak: Yeah, so I stayed at The Virgin last night, and you know, Dallas doesn't have a lot of exciting boutique and lifestyle hotels, so I wanted to stay at The Virgin to try it out.

But what I realized coming into that hotel yesterday and some other hotels we toured before we came to Dallas is that I give my team a hard time, and we do many things well. One of the things I noticed is my check-in experience could have been more fun than it was.

It was way more transactional. It was like, okay, you're here to check-in. And then the hotel upsold me an upgrade because my room wasn't ready. So, I was irritated about that. I also heard the front desk person talking to her boss, asking how much they should hit me up for the upgrade.

And then I went to the bar for lunch, and the food was good. The space was incredible and not that busy, but the bartender and the team felt that they needed to be more engaged and were distracted and doing other things. So from a service standpoint, you notice all of those things right off the bat.

There was a Four Seasons hotel in Toronto that was the iconic Four Seasons Hotel. Four Seasons was founded in Toronto, and it was like this old kind of crappy building, but it was still amazing because it was a Four Seasons, and the service was excellent. So service, the experience, and how you're made to feel when you enter a hotel can cover many design elements.

Now. The design of the Virgin is excellent. It's cool, and it's a bit kitschy. Everyone has their taste. That was great. But how you're made to feel is the most important and challenging thing to get right. 

Chris Powers: So that leads me to a question. What is hospitality? What is the hotel industry to you?

What does hospitality mean? Is it the way people make you feel? Is it how things look? Is it all of it together? Like what is hospitality?

Jake Wurzak: It's memories and experiences. Most of the best things in my life have happened at a hotel, while on vacation, and even on business.

Like, think about these significant business events in your life. Many involved a hotel, which could be a big power breakfast. So it's woven into the fabric of people's lives. But, we were recently touring this fantastic new city where we plan on investing, and some are very like limited service hotels.

And we're in this remarkable city with great bars and restaurants, and there are people in some of these hotels sitting at the bar of the Hampton Inn, and I'm like, do these people not get it? Like, do they not care? Like, do they not care about the hotel's quality, the experience they're getting?

Are they immune to that? And we are different from them. So I'm curious if my hospitality view differs from others, but that's what's most important to me because it's all of these memories and the things that I look back on and hotels. And I want to take my kids too, and that's what I think.

Chris Powers: In today's world, it's hard to make everybody happy. It's hard to make everyone happy. The bar keeps moving; tastes change, culture changes, and things change. What do you think about that? Is your goal to make everybody that walks in happy, or is there a specific target market you focus on?

Or you could focus on all of them because you do different hotels. What do you think about that? Because my buddies that run restaurants, I'll go on Google and look at their reviews, and I'm like, man, I know how hard they work and how much time and energy, sweat, and tears they put in. And then you watch some jackass put like a one-star review because maybe they had that one interaction with that grumpy waitress or waiter that day, and then they get hit with a one-star review.

You're in that world.

Jake Wurzak: Taking a cue from fashion. You have to be focused on whom you want to target. Hermes, Chanel, and Prada might only be for some, and some people like Gap and Old Navy, and they may like J. Crew. So hotels are the same thing. You got to focus on whom you're serving.

I get in a debate with my dad all the time because he is like, I would never stay in a room like this. Well, of course, because you would never stay in a room like this. I'm not designing the hotel for you, I'm designing it for someone 25 to 55. But what we always try and do is if we make it great so that even someone outside of that target demographic could appreciate it.

But that's where the service component layers in. Because if it's just the design, if it's just the experience, and you need to include the service and the whole package, your target market is narrowed down. 

Chris Powers: Yep. All right. 

We'll get into hotels, but we jumped right in.

Now let's take just one step back. You could have done anything you wanted and chose to get into hotels. Why and how did you get into this business?

Jake Wurzak: Well, surviving Covid made me think, like, whoa, we're going to talk about that a real deal. I was always in the hotel business as a young kid.

I worked with my dad. My dad was the hardest-working guy you would ever meet, and he was, at the time, running two or three hotels. I would work there on the weekends, and it was an opportunity to hang out with my dad because we didn't play sports or do all these activities together.

So going to work in these hotels was something that I always grew up doing. But I have always loved hotels. Like even as a little kid staying at these hotels, thinking about the design, and experiencing different hotels. And I also knew that I wanted to get into real estate, and it was just always a passion of mine.

You know, family and friends growing up were in real estate, and I saw that, but I thought hotels were the way to combine a real operating business with the fundamentals of real estate. And. It just happened. It was never a question in my mind that I wanted to do something else other than hospitality. I went to law school to become a lawyer without the intention of practicing law.

I just wanted to jump right into hospitality, and my path was trying to learn from others before I went out and did my own thing. Because I always wanted to be an entrepreneur, and I never wanted to work for a big brand or fund, I always wanted to do it independently.

Chris Powers: As you sit today, how are the companies? You have two companies. How are they structured, and can you get some background about what each one does?

Jake Wurzak: Sure. So Wurzak Hotel Group is our operating company, and it manages the majority of the hotels that we own. And then Dove Hill is our investment and development platform. So we raise money from high net-worth investors and institutional investors. So Dove Hill finds the deals, puts them together, and then has project management and a construction group that executes them.

And during Covid, we started investing in other people's hotels that we needed to manage, and there wasn't a management issue. So now Dove Hill has investments in 17 or 18 hotels, and we only manage 10. 

Chris Powers: Okay. What does that look like if you invest in just passive LP because you know the business? Are you involved?

What does that look like?

Jake Wurzak: It's during Covid, so these were preferred equity investments for the most part. In one case, we bought a note. And that was something we had never done before. But a guy that runs a substantial institutional fund that is a bit of a mentor of mine, early on in Covid, walked through this strategy.

And what clicked is we are in a moment that will never happen again. And I have all these relationships in hospitality. We can raise capital, and let's do these structured equity transactions in deals that we can underwrite with minor brain damage. We know the market and hotel, and we can go into a preferred equity position and make money quickly.

We did that, but we invested in operators we knew or had a relationship with that were good people on the ownership side. They had good management companies and were caught like everyone else in Covid with zero cash flow.

Chris Powers: COVID sucked, especially for the hotel industry. So March 2020 comes like, what? What kind of happens? 

Jake Wurzak: Denial happens. So you think that all this is just going to pass. And I have a group of about eight hospitality CEOs I speak with regularly during Covid. We were talking every single week, and I became obsessed with trying to figure out all these government programs that were being talked about and how we could get cash to stay afloat.

The other thing that was happening is hotels were closing. Hotels don't even have locks on their door. How do you close a hotel? There's no lock. And I remember being in an executive meeting saying, Hey, like, some of my friends are talking about shutting down hotels because that's the only way to reduce cost as much as possible.

And I remember my dad and others in the meeting were like, no way. We're not closing a hotel, and we're not doing that. And within three weeks, we closed one or two hotels because that was the way to minimize and reduce costs. It was something that, now looking back on it, looks like a fog. I remember writing investor letters, and I'd put a big picture of Muhammad Ali, like knocking some guy out and being like, Hey, you know, we got punched in the face, but we're coming back.

And we did come back. We kept all hotels during Covid. We raised capital on our deals and put preferred equity out in other deals, but we had to structure our preferred equity. And that was interesting. And the most challenging part about Covid has everything you worked for, let's say, maybe 18, 19.

All those deal returns just evaporated. So, you had to put more equity in deals and sometimes needed more cash flow for two or three years. You know, we just started distributing certain assets. So when you look at the IRS and those sorts of things, they will look terrible.

But we are so much more robust, and everyone in the hospitality industry who survived and thrived will be much stronger. And anything we're facing now, like rising interest rates. That's scary, and it's not Covid. We're not closing hotels because of rising interest rates. And I've also had a new appreciation for negotiating with lenders.

And everyone likes to think of that as equity, and it's always your problem. It's your money. Well, you know what, Mr. Lender, we're in this deal and partners. Sure. You might be in debt and lower down in the capital stack or higher up in the capital stack. But we're in this together, and we got to come up with a solution that works because you don't want my hotel, I don't want to give you my hotel, and if we have a little time, we can get through this.

And it gave me a new appreciation for standing your ground and being less accommodating. Also, from an investor standpoint, you know, we had investors calling us, we had every single opinion in the book, and you had to be humble, be respectful, but they're paying me to make the decision. So I needed to be confident in the decisions that we were making and not waiver.

So it was a good lesson in leadership as well. 

Chris Powers: Yeah, I've shared that same sentiment. Working with lenders throughout Covid, I had a new appreciation and learned more about their business. Many times you think like you take the money and you hear these, you hear your whole life.

Like if you don't pay them, it's over. They're coming after you, blah, blah, blah. You have a guarantee, you know, it's your reputation, it's all these things, and it is all those things. On the other end is like if they want continued business and they can recognize there's a problem from a good borrower that's trying their best.

We had such a great rapport. We communicated early, stayed in touch with the lenders, and gave me a new appreciation for their business. And also, there were a couple of lenders that made me realize  I would never want to work with them again. 

Jake Wurzak: A hundred percent. Like CMBS.

We should only ever do a CMBS deal again if there is someone to talk to. And when you get someone on the phone, a 25-year-old kid in Kansas has no authority to do anything. And you're back channeling with the ultimate decision maker, typically a hedge fund in New York.

And that becomes challenging. And that's not what real estate is about, and that's the financial side of real estate that will not create or add any value. And we want to focus on lenders with whom we can build a relationship and get stuff done. 

Chris Powers: Do you remember your worst day in Covid? Like not, business-wise, just you.

I'll ask it from my perspective there. I don't remember the exact day, but it was shortly after going into March. We had just put a significant portfolio under contract. Industrial was all the rage. I mean, tons of bids on it. I mean, it was, we were rolling, and within three weeks, the contract dropped headlines like, don't pay your landlord like it was such a black and like going from the top of the world to the bottom of the world in so fast, it was so breath-taking. 

And there was a 48-hour window where I needed to be in a better spot. Johnny, we've talked about it on the pod before. Johnny had to just listen to me cry and bitch and scream, and did you ever have a day like that?

Jake Wurzak: The deal was better than what happened to hotels. Every single day was getting punched in the face. Fortunately, our company had some cultural issues we could clean up through Covid in our corporate entity. But I remember going to the office alone, and we had to lay off about 700 people.

It is just massive. So you're carrying around that guilt with you, but it was every day. There wasn't a specific moment. The best day was when we started doing deals and not sitting in the corner and crying anymore. That was what I felt like I can survive anything, and we can overcome anything, and there's always going to be challenges and issues in business, but it's like how you deal with it, and a lot of people dealt with it negatively.

I also realized that there are many bad people out there, and if you're a good person, you want to do well in business. You can distinguish yourself in the eyes of these lenders and some other people to get stuff done.

Chris Powers: Okay, So how has the industry changed post-Covid? Like are there fundamental things that will never go back?

Is it back to pre-Covid, is it just what it is now, or like what's changed?

Jake Wurzak: Big behemoth box hotels were crappy before Covid, but post-Covid, they haven't had any CapEx put in them. They're just so big and lifeless. It's hard to imagine why people will stay and why companies want to host their events there.

So that concerns me. There are certain cities that I am very concerned about because I don't think even talking to people about living there, they're like concerned for their safety. The vibe is just gone. I want to move forward and focus on things more in our control. And when you have city government, all this other crap going on, that's a big distraction.

People could see it as an opportunity, but everyone got so excited about Detroit and what's happening in Detroit now. Are you going to Detroit? And people have been talking about that for five years. Some of these cities might have yet to return to where they were. And we have hotels in our portfolio that still need to be back to pre-Covid levels. 

Over time they get there because of revenue, but we still need large businesses. One hotel government isn't even travelling, so you still need to do a Covid test if you have a government event, and it would be like Lockheed Martin and Rolls Royce.

It's not just a bunch of Army people. And that seems so backward to me. There are fewer business travelers because more people are on Zoom. Now on the flip side to that, we're seeing a lot more corporate retreats, but if you want to be inspired and have a corporate retreat somewhere, you're not going to this big, bland, boxy hotel with nothing with these ballrooms and no windows and no fresh air.

So the hotels will win out and be the ones that are differentiated in lifestyle. The commodity hotels on the smaller end will be fine because they almost double like workforce housing. 

Chris Powers: So you just answered the question. Is there anything to do with those big boxy, bland hotels?

Do you turn them into a better hotel or ditch that and change the product type altogether?

Jake Wurzak: Some of them you can turn into the better hotel. If you ask Marriott, they would say We are the best renovator of crappy Sheridan hotels. We've taken two Sheridan hotels that were the worst in the market in their entire portfolio and made them some of the best ones.

So there are some opportunities, but sometimes the bones and the spaces need to be corrected. So I have some friends that are converting hotels right now, like these big ones, into multi-family and apartments. You can take a big ballroom, and now you can add squash courts and a basketball court, and this thing becomes like a unique multi-family site.

But the office will have similar challenges, and some of them might get knocked.

Chris Powers: What are you doing to convert? You said you're converting Sheridan's to Marriott. 

Jake Wurzak: Sheridan's better Sheridan. We're not doing that anymore. We don't have that, but we've done two of them, and Sheridan was this old brand that got stale, and they revitalized it amazingly.

We have a Sheridan outside of DC, where the room is more admirable than any lifestyle hotel. The product looks phenomenal, but you still have the name Sheridan, which might be a challenge in some people's eyes. Marriott's working incredibly hard to overcome that, but there is an opportunity to go in and renovate these hotels.

It's just on what basis? You have to look at your entry point.

Chris Powers: Okay, I know the answer to this question. There are many different cars, but you hear Sheridan, Holiday Inn, and Hampton Inn. What differentiates any of them? Nothing, and just a different name. It's like a Corolla versus a Hyundai versus a whatever.

Jake Wurzak: They're starting to get so commoditized, and it's taking the fun out for me as an investor. Our company certainly is starting to move way more into the lifestyle and these highly differentiated assets because there are multiple levers that we can pull to generate revenue. What are you doing to generate extra revenue if you're just a Holiday Inn?

Versus the Hampton Inn next door to you, like nothing. When everyone's newer and a little bit nicer, that's the one that will command the high rate. And people are going to stay at, at these more prominent resorts, these life lifestyle hotels. I'm going to do a rooftop brunch. I will open up and do a comedy show in my bar.

I'm going to have the hot DJ come in. There are so many more opportunities to generate revenue on the amenity side that will drive your room rate as opposed to these little transactional hotels that could be more interesting. And if you're going to invest in those commodity-type hotels, you should invest in multi-family because you have guaranteed leases, and there's a lot less risk.

Operating a commodity hotel is not worth the headache unless you're such a good operator that it doesn't suck the life out in time out of you. 

Chris Powers: What would make a fantastic opera in that type of hotel? What makes the star shine in that hotel class? Like what is good operating look like in a commodity?

We can discuss what it looks like in lifestyle, where it's excellent service. Five-star service. But what does it look like at like a Holiday Inn? 

Jake Wurzak: I love that question. The biggest thing in those hotels is revenue management, and that's setting your daily rate and the strategy around that because it is so important. 

The next thing is automation. How can you automate certain things inside your hotel and standardize certain operating line items where there's zero deviation from the hotel team? You're buying toilet paper at the same price as everyone else, and you don't have to think about it.

You maybe have limited front desk staff because everyone's checking in with keyless entry, like those sorts of things. And then maximizing what those hotels have and what people like about those hotels. So if you're serving complimentary breakfast, it better be the damn best free breakfast you can get.

And everyone likes a bar, so why don't you try and do somewhat of an inspired bar? Because you're going to have captured audience. We were just in this, the most beautiful town, and people were at this Stay Bridge bar. Some people don't care, and they want to be there. Doing an excellent job at it is essential.

I had a friend I was talking to the other day, and these commodity hotels are starting to pull things from lifestyle hotels. So they're starting to take like, you know, good coffee, and they're starting to take like a curated art program, all this nonsense. So you have to focus on the operational metrics and KPIs and have a very defined set of things you measure against to decrease the decision-making of the on-property team.

Chris Powers: First question out of that. Who's setting the daily rate? Is this a computerized program that's what they do in multi-family where it's constantly updating by the hour, or is it by the day or the week?

Jake Wurzak: You won't believe this, and it is crazy. So the most prominent brands, Hilton and Marriott, have to set your rates through their systems, which charge you for that.

Yeah, they charge you. But the systems need to be updated. Unlike that incremental stuff, they have a rate bucket and eight rate categories, a hundred dollars, $120, and $130. So we have people and revenue managers looking at data and information and changing those rates hour by hour and daily.

But this is an ample opportunity for AI to layer on heavily. So someone's overseeing it and viewing it, but they're pulling in data from thousands of different sources to inform what these rates should be like, I don't know, Google movement data. If a snowstorm and the airports close, it should automatically trigger jacked-up rates.

The other thing we see in hospitality is it's hard to figure out what other hotels are charging because the rate that you see on a website is the rate that Chris is getting, booking the same day, the day of. Still, it's different from the rate they might charge for the Chris conference booked in the hotel.

So it's hard to know what their occupancy and rate are. And there are services you can get on a 24-hour basis, weekly, and monthly basis to see how you compete. But there are still a lot of challenges to set the rate, and that's the most significant opportunity. 

Chris Powers: That's crazy because you said Hilton uses the multi-family. I try to remember what it's called, but it changes them by the minute.

You said KPIs. I know. What's RevPAR?

Jake Wurzak: Revenue per available room.

This is the significant metric. So it's more than revenue per available room, but you want to look at your revenue per available room compared to the other hotels you're competing against. And revenue per available room is comprised of your rate and occupancy.

Just multiply the two, and you get RevPAR. The index is how you compete against others. So a hundred percent is you're getting your fair share of the business. 120%, you're getting like 20% more than the business. So you want to be above a hundred percent. You have to figure out why if you're under a hundred percent.

And that comes back to like good old sales and revenue management technology. But that's the measure I look at every month to determine if my team is doing what they're supposed to be doing or if we need help. 

Chris Powers: Is there anything else you look at that tells a story of what's going on, then you dive deeper into if there is an issue?

But what other KPIs would they look at, especially at these more commoditized hotels?

Jake Wurzak: Yeah, so that's just revenue. Yeah. So you want to look at your GOP, you want to look at how your GOP is comparing to prior years, and you also want to look at something called flow through. So if you had a budget, let's say your payroll is expected to be a hundred thousand dollars, and that could be based on $200,000 of revenue.

Well, let's say the market went crazy, and your revenue jumped up to 300,000. What flow through is, how much of that extra $100,000 of revenue are you bringing down to the bottom line as profit? So to get that a hundred grand, which was just in rate, Did you like, I don't know, hire a bunch more housekeepers or something, and then you're not flowing anything or you flowing everything.

So that's a key metric. The other one is labor efficiency and booking. How big is your sales team relative to the revenue they're generating, and how does that compare to a hotel? Another thing we look at is the net operating income per key. So some fantastic hotels in South Beach generate $80,000 of net operating income per key.

Some hotels are doing $20,000 of net operating income per key. It's like, okay, why aren't I as profitable? It's because your revenue's not big but also because you need opportunities on ancillary revenue items you're not executing on, like resort fees. The president just came out and said he wants to eliminate resort fees.

That hotel is charging $90 a night, and he's got to get rid of it. That's what we're focusing on right now. And I can tell you that in the two hotels, I stayed at the past two nights, I paid resort fees, and I got a couple of bottles of water. And it is what it is. It's the cost of the hotel room, and it's not that big of a deal.

There's much bigger fish to fry right now. There's much bigger fish to fry right now. But labor is the most expensive thing in a hotel. So we look very much at labor efficiency. And the exciting thing in hospitality is that housekeepers take time to come by. We have immigration issues.

These were low-paying jobs. Now they're high-paying jobs. But most hotels today are using what's called contract labor. And this is the dirty secret in the hospitality business because you're paying a company to give you employees. Those might be employees you couldn't hire directly, and you're paying them much higher wages.

But that wage goes to the contract company, and then the employee gets whatever they get. But that's raising the expense of your hotel. So we're trying to figure out how to retain people. How do we create a culture where people want to show up to work every day and clean rooms?

It's a hard job. And how do we attract talent? Suppose you want to talk about like the big macro stuff. In that case, there are specific programs like the J One program where you can get fantastic hospitality students internationally to work in the hotel. They do a tremendous job, but. We should have some work visa program, too, to help fill some of these jobs that are getting filled by people anyways.

Chris Powers: Has anybody ever thought of, if the guest was like, Hey, I'll check this box. You don't have to clean my room while I'm here, and you guys say, great, we'll give you a $50 discount.

Jake Wurzak: Yeah. The hotel business is fun because this is why there are so many levers you can pull to create an operational advantage, and that might be one of them. During Covid, we're not cleaning rooms because of Covid, and some of that is stuck. I'm a traveler that doesn't need my room to be cleaned.

If I'm traveling on business for two or three days, I don't want anyone in my room. So I would check that box and give myself a complimentary drink, which would be a considerable saving. The hotel industry has moved into soft touch cleaning, like making the bed and freshening off the towels.

That's it. It won't work in luxury hotels, but in four-star hotels, a hundred percent.

Chris Powers: I will put a sign on a pick it up. Go in front of your hotel And pick it up. Check the box. Don't do the cleaning. 

Jake Wurzak: Yeah, you might know, in some of these locations, there'll be union pickers out front too, so you'll be in good company.

 But it's an excellent opportunity to save money because many use only some of the hotel offers. And that would be one way you could do it technologically through an app. And you could pick whatever you want, what you don't want. 

Chris Powers: We'll get to lifestyle in a minute, but we're talking labor.

And we're talking resort fees. And the only thing that's coming to my mind right now is Airbnb. On Twitter, people will post all the expenses of having an Airbnb. And clearly, not all short-term rentals are Airbnb, but from somebody in the hotel industry, how do you think about Airbnb, and are any of these just never going to be profitable?

And the industry's getting away from some people, and they will have to specialize in something that looks more like a hotel than an Airbnb. I'm talking too much, but you know what I'm saying.

Jake Wurzak: It's about scale; you know it in your business. The most crucial trend to come out of Airbnb is that people like a differentiated experience and staying in a house or a condo, especially if you're with a very appealing family.

So as we build new hotels or buy hotels, we've looked at adding Airstream, trailers, tents, larger family suites, and different things. But people fall in love with short-term rentals because the barrier to entry is shallow.

You could buy a house, manage it and make a little bit of money, and maybe it's like a vacation home, and that's offsetting some of the costs. But if you're going to do a business out of it, there is just no scale. We can get in a hotel because you're paying some regional manager to manage five things in a market or spreading corporate overhead costs across all these different markets.

But you still have to deal with cleaning people and maintenance and engineering, and you can only afford to have those people on part-time staff. So, as like a fun little side hustle. Sure. But I've yet to see the giant monster short-term rental. And our friend Richard will come up with that and do that.

But what he's doing is interesting because he's different. He's making more significant places for meetings and retreats, which is an opportunity to upsell people. And you can offer specific amenities, and they'll pay for that. But if someone rents a house from you, they're paying for the house and nothing else.

 So there's no leverage to extract there. And Airbnb, like people are freaking out about it, but it's honestly not something we talk about anymore as being something we're concerned about.

Chris Powers: All right. Let's talk about lifestyle. How do you define lifestyle? 

Jake Wurzak: Oh my God, this is so hard.

I don't even know what term to use anymore. Boutique hotel or lifestyle. It's funny. Every time I talk lifestyle, there's a swinging lifestyle, and I always get nervous that people will think about that. 

Chris Powers: That's why people love your hotels, and that's your target market.

Jake Wurzak: We're the swinging central, and that's what we're known for. So lifestyle and boutique all come down to highly differentiated, curated, handcrafted, high design, and, most importantly, experiential base. So like, you're going to have an emotional connection with the property, and you're going to remember it, and you're going to feel like it's your home.

That is the ultimate goal, and that's what that segment is, but it could be a lot of different quality types. You can have a lifestyle hotel that is a five-star hotel, and most luxury hotels. I would also classify it as lifestyle, but you could have a three-and-a-half and a four-star, like a hit motel.

I would also classify it as a lifestyle hotel. 

Chris Powers: Okay. Besides you all, who is the most significant person in the industry at creating places that people are attached to and creating experiences that people can't forget, or who are the companies or folks you admire the most that do this the best?

Jake Wurzak: This is an easy answer.

My good friend Barry Sternlicht is a master at creating experiences and hotels. Also, building companies that make money and great real estate investments are attached to these hotels. He's built one of these iconic brands, including Shrager and Andre Balazs.

These people have paved the way for everyone else in the industry to get started and understand the foundation. Liz Lambert from Texas is another one. She's all over Austin. Her design and what she was doing with these existing buildings and turning a crappy dive, drug den motel into something special is attractive.

A buddy of mine, Jeff Klein in LA, has the hottest members club in LA, and that all came from this iconic hotel that he owns called the Sunset Tower Hotel, which initially was not on the outskirts of town, but in an area of West Hollywood that was just okay. But he created this iconic restaurant where all the celebrities wanted to be, and the hotel was excellent.

And then he created this member's club, which is like a new category that's popping up that a lot of hotels are doing because you can charge all these people a lot of money to be members. Then that offsets a massive amount of your G and A on the P and L, which is pretty interesting. 

Chris Powers: That is super interesting. It's like a Soho house, but you can stay there for a type of deal.

Jake Wurzak: Yes. Or you cannot stay there. My friend in LA wanted to create a new Soho house because he once saw his dentist at Soho House, and that wasn't cool. So Soho House became this massive public company. There are many members, and they are some of the best in the business.

It's hard to find someone combining a membership experience, food and beverage, and hotels better than they do. But there's always going to be these people that create these little exclusive enclaves. But again, how do you scale that? So that might be one great experience in one city, and that's it, which is fine.

But Soho else has found a way to do it worldwide, which is incredibly impressive. And I think they are a master at what they do.

Chris Powers: Are companies like Four Seasons, Ritz Carlton, and St. Regis kind of the big-known luxury? Are they still the cool ones, or are all these emerging brands overtaking them?

Because you've just mentioned all these names I've never heard of. But even now, I feel like when I'm scrolling; I stayed at the one in Miami, which was incredible. We can talk more. We will discuss Barry briefly, but what do you think about Four Seasons, St. Regis? Are they getting older and tired, and there's a new brand, or are they refreshing and always going to be the Kings?

Jake Wurzak: Four Seasons is the best for luxury and consistency. A few other brands, like Belmont, which is heavy in Europe, and a few in the United States, just hit it so well. Each hotel has its own identity. Ritz-Carlton and St. Regis are owned by Marriott now, and they're starting to get more sterile for seasons because they do one thing luxury.

They've maintained this hierarchically, but some excellent others, like Ahman and Rosewood, are very different. And they each have their way of doing things. O Bears is now starting to have all these retreats, and their hotels are set in the scenery and design. There are exciting hotel companies, and once they reach a certain point, they get a bunch of wealthy developers saying, I want that hotel, and I'm going to build that.

So they're able then to compound this because growing a hotel company is hard because you have to find the real estate, create the brand, and do it right? And for many of these places, location and experience are everything. So it's not class B industrial, and you could say, Hey, this stuff is everywhere.

It's the same. I will buy it, and it's got to be precisely the right magic. 

Chris Powers: Okay, you just said Rich developer finds sight. So let's move into how you underwrite, think about things, and how to raise money. What did you mean by a wealthy Developer finding a site? Do they find a site and say, Found this site; hey, four Seasons, I'm going to build all the real estate, and you're going to operate, you're going to sign a lease with me?

Like, how does it work?

Jake Wurzak: In the case of that, and there are other companies, it's not just Four Seasons, but everyone wants to own a hotel because it's typically an excellent investment because, in good times, you're generating all this cash flow. But it's one of the only real estate asset classes where you can go inside, live it, breathe it, share it with your friends, and stay there like you're not going to hang out in your Class B industrial set.

Right. 

Chris Powers: Any friends I'm taking to hang out there? It's more for punishment than for hanging out.

Jake Wurzak: I had fun at Cardone last night, and that was like a warehouse. So you have a future in doing some fantastic lifestyle and industrial spaces. 

Chris Powers: I agree. Many calories have been killed at carbons for me, and I bet out there, it's incredible.

Jake Wurzak: It's good. So, Typically you'll have a developer who wants to bring in a hotel because there will be a compounding effect. Maybe he owns other real estate around there. The other thing that adds is if he was trying to sell condos or she's trying to sell condos, the hotel name, and the service, and the experience will add a level of prestige that will help drive those sales.

So that's one way. And then they sign a deal with a well-known management company. They'll brand it, they'll create it, and they're just like a hired manager. So they get paid a fee. It's usually three to 4% of revenues, and then all the expense and profit go to the ownership. There could be profit sharing at the bottom.

What we do is different because we're vertically integrated. So we find the investment, whether it's a development deal or an acquisition deal, and often we will create the brand, we will create the business plan, and then we'll layer our management company on top to execute. Okay? So we've been growing, and it's hard because we have to find the real estate and then do the deal.

We're now getting to the point where a management company has scaled so much that we are talking to other people about doing what we do for ourselves and others, whether managing their hotel or joint venturing on a deal. Someone owns the land and wants to build a hotel but needs the expertise.

Those are some great deals that we've gotten into where you have a savvy real estate investor who wants a hotel, will invest, will manage and execute, and will help them get debt. Put the deal together, design it, and it's a tremendous value add because if you're not in hospitality, it's hard to do it yourself.

Chris Powers: Is managing challenging if you are managing many different brands, like does each brand require you to manage differently, so you have to learn all these different playbooks, or is it all pretty much the same?

Jake Wurzak: It's all the same, but they all have their little brand standards and what they do.

But we like to have the Wurzak way. Wurzak Hotel Group. We want to do it our way, which is always elevated. It was interesting because, again, like I was at these couple hotels the past few days, I'm like, man, I give my team a hard time. We do things well, but like in all businesses, you must have a little tension with your operating team, designer, and architect to make the magic happen. 

Chris Powers: Okay, So where do you find a suitable site? What do you all look for? Like, what are you looking to buy? There are lots of hotels out there. What are the ones that check your box, assuming? You know, reasonable price.

We'll skip over the like, well, it's just cheap. I could buy it for a great price. What is something you would want to hold forever?

Jake Wurzak: So that's a different category. We currently have three strategies: discount, purchase price, and value adds execution.

We're buying an asset that we're getting at a reasonable price. We can significantly improve revenues by upgrading the management, doing a value add renovation, and repositioning some areas of the hotel to create value. I suggest adding a bar by the pool. It might be redesigning the lobby so it doesn't look like something from a '90s furniture catalog. That's one strategy. 

The second strategy is these lifestyle and boutique hotels. That's converting an existing building or hotel into a highly differentiated one that will outperform in the market because everyone wants to be there. That has a great food and beverage component that is exceptionally designed forward.

It's independent and not affiliated with Hilton and Marriott or a soft brand, but it's not a Marriott, Westin Doubletree Hilton, or something like that. And then the third strategy is structured equity. Currently, capital is very much available, and debt is a challenge. We can provide gap and equity and add strategic value as a partner.

You don't need to take control. We know the asset and the market. We're coming in, deploying capital in a precise way where we're getting a preferred return before the common, and in some cases, it enables the common to get an outsized return because our return might be capped. So that is three.

The fourth is compact full-service development. Building these big master resorts takes time, money, and risk. By the time you get done with one of them, you could have missed the market, and there could have been a lot of things that happened during that time. So compact development is something we liked because you can build a hotel within two years.

It doesn't have these big massive ballroom spaces where you're worried, like, am I going to fill this? There's a great bar, and there's a great rooftop bar. The room sizes are great, and it's woven into the neighborhood. So from a development standpoint, that's what we're focusing on. In the next three years, though, I want to buy a never sell asset, which is this iconic asset that could never be reproduced and never be built again.

It might be because construction costs are too crazy, and the location will never come up again. But it's always going to be a hotel, and you can add a little bit to add a little bit too, add a little bit too, and constantly drive value for a generation or multiple generations. 

Chris Powers: What's a soft brand? 

Jake Wurzak: A soft brand is when you want to leverage the power of a Hilton or a Marriott, but you want to have your own identity.

So we have a soft brand in Fort Lauderdale called the Delmar. We created the brand, logo, soaps, scents, and everything about the design. And we pick the mattress, the sheets, and all the fun stuff, but it's tied into Marriott. So we get this power of this extensive distribution system.

We're looking at a deal in the Southeast and want to do it independently. We want something other than a brand. And the beauty of that is the market's strong enough where we don't need that extra fuel. But you can always add a brand later. So if we want to get a little extra and a brand wants to participate, we can always add that.

But you can't take a brand away once you start with it. It's hard; you must pay the liquidated damages and get in the whole fight. So you can always add it, and it's hard to eliminate it.

Chris Powers: To get in with these brands, do you have to prove that you've run a hotel before? If I were to call Hilton, I'd been in real estate for a long time but have never run a hotel, and said to them, Hey, I want to buy this in Hilton, and I want you to manage. What would they tell me?

Jake Wurzak: They'd say, Chris, you're our new best friend. Oh? Yeah. So if you let Hilton manage it all day long, they will help you do that. If you said, Hey, we've got like this industrial management team, they're world-class.

We're going to have them manage the hotel. They'd be like, whoa, whoa, whoa. We need to understand your company and find a way to allow you to manage it. You can franchise it and hire us to manage it, or call your buddy Jake and have him manage the hotel for you.

So we are now getting inbounds from other owners and developers to either participate in the deal on the equity side and manage or manage a third party, which is excellent. 

Chris Powers: Speaking of management, you said one of the ways you add value is by upgrading management. And I'm going through my notes, and I'm seeing like upgrading uniforms, upgrading how they greet you when they're there.

Let's talk about training and what upgrading management looks like.

Jake Wurzak: We just bought a hotel owned by a group that owns several other hotels. But they could have a better reputation, and their company culture could be more robust. They're just going through the motions.

So, for example, we're walking through the hotel and meeting the staff. The staff seems great and engaged. Then we see this massive pile of checks like leaving the accounting office, you know, what's that? That was us five years ago. We send all the checks every week to the home office here.

They sign, and they send them back. Then we mail them out. Like doesn't make any sense. Waste of a whole bunch of time. We go into the employee cafeteria. We charge all our employees $3 and 90 cents for lunch daily. Who's making money on $3 and 90 cents? That shows you that you can win these employees by paying them a fair wage and giving them free lunch.

We get free lunches, meals, and crappy healthcare at our hotels, and that's an easy thing, just from the employee side. But we went in, looked at the menus, and toured this up.

Chris Powers: Do you do this, or have a team that does this?

Jake Wurzak: I have a team that does it, but I get involved. I also have a team that gets in the weeds. Now and then, I need to get in the weeds. So, for example, in this one hotel, we were walking through there doing a banquet, and they were serving a McDonald's lunch. And it's just different from how we would ever do things.

There are certain vendors you work with. There's a particular presentation. This company was stuck in the '90s. These old big silver things where people scoop out a big hunk of mashed potatoes and clop it on their plate. No one wants to eat like that anymore. Everyone wants to eat on a charcuterie board, have great salads and see how the ordinary world works.

These hotels are stuck in the nineties. We are changing that, going to the bar, adding a fantastic cocktail menu, listening to music, and looking at the lights. Do you want to sit in a bar when it's this bright out? No, we got to dim our lights down at six o'clock. So those little touches to create the vibe and energy are essential.

And then it's in some of our heavy lifestyle hotels; I'm going in for dinner and drinks, and my wife hates it, but I had my phone right here next to my leg. Everything I see, I have notes. And the chefs always come out, and most of the time it's like, oh chef, it was phenomenal.

The food was excellent. I like this. I want to do this. Why are the uniforms a little off? We need to fix that. The cocktails were great. Recently I went to the hotel, and the chef asked, how is everything? I said, you know what, chef? I wouldn't be doing you a service. Tonight was not your night.

You let me down. It could have been a better job. My wife almost slid under the table, like it was the most awkward thing ever. I usually reserve those conversations for my leadership team, and I'll say, oh, everything's great. And then I'll text either the CIA or our company's president or someone on the operations team like you guys got to look into their glassware.

The napkins must be more suitable, or the food must look right now. I just wanted to say it. And having that personal touch is essential because many of these management companies are getting so big. And we went to the best hotel in this market we visited yesterday, and I was shocked at how they were doing things.

And they've gotten so big that they've lost this personal touch and the spirit of that personal touch ingrained in their company's culture. For example, we walked in, there was a coffee shop right next to the restaurant, and it was seven o'clock at night, and the little pastry case was filled with croissants from the day earlier.

I'm like, God, that's going to be terrible. Because tomorrow when I go down for breakfast, they'll give me this dale old croissant that's just been sitting there. That's just a need for more care and attention. It is the fun of hospitality, and it's getting into the weeds.

Chris Powers: It's into the weeds. Like I would ask you, who cares what the chef's uniform looks like? Why does that even matter?

Jake Wurzak: There's an old-school charm to hospitality, and people care about the presentation, look, and service. And in some of our hotels, we have a fantastic rooftop bar, and we let the bartenders wear their own thing.

We don't want them in a uniform, and we don't want them in a polo shirt with the name of the thing. That's not cool. These guys have sleeves and tattoos, and we want that all to come out in that personality. But we still have guardrails and a framework of what we want as a brand and company, and we put people in there.

Sometimes, it's this for specific uniforms, and you must stay consistent. So it depends on the place. But it makes a difference. 

Chris Powers: I'm sure you do many surveys with customers leaving. What are the things people mostly bitch about, and what are the things that most people love?

Jake Wurzak: It's tough. Okay. Imagine if you had a trip advisor for all of your industrial tenants, and they could go on there and complain, rave, whatever they want to do about it. Your space is in your deals. And your investors, look at that. So occasionally, we'll get a call and say, wow, the scores are so great at the Delmar or the Hilton.

What are you guys doing? Every once in a while, we'll get a call, and you guys got to check the AC in room 803. And I'm like, this is, why am I doing this? But the good thing is you get constant feedback, a measurable goal to which you can assign the team. So we opened a hotel, and the guest service scores needed to be in a different place.

So we dug in, researched, and found that it was an issue at the front desk. The arrival experience needed to be better, and that starts before the guest even gets to the hotel. Was the GM sending a welcome letter to people? Like, Hey, I know you're coming to stay at the hotel. We have the pool party open this weekend.

The rooftop bar opens Thursday. We have a great DJ. There's this new gallery in town that you should check out that would excite you to stay there versus when someone comes to the front desk and says, Hey, are you here to check in? Like that's the worst thing. And that experience.

So you can measure that, but you have the stomach and the execution capacity to change things when they're wrong. The good thing is you get tremendous positive reviews, and we highlight those and do that with the staff. And we have a culture committee in each hotel; the sole intention and purpose are to improve the guest experience and the team members' lives.

And they talk about how we can improve service, what's working, what's not working, and what we could do to make the team members feel better. A lot of touches, you feel, is stuff.

Chris Powers: It was like, there was a year in Covid where everybody thought the days of service were over.

People are just going to disappear. You'll walk into rooms and press a button, which will be the experience. And we're getting more into touchy-feely stuff. 

I greatly respect the level of service and requirements for people to feel rise.

Jake Wurzak: Yeah, it's a customized experience, but you could figure out what you want because you're a well-traveled guy. You go on vacations and know what you like and don't like, so you do that.

But you got to train people to do it. But you also got to show them the why. Because if you train them and they don't understand the end state and the goal, they will be like in this weird scripted moment, making someone feel like this is their home.

They're staying at their most fantastic friend's house. They feel they want to belong and would want to return, which is the goal.

Chris Powers: You raised money from Mr. Starwood and Mr. Barry Sternlicht. And you also just said that he's one of the industry's best hoteliers.

Is he better at giving capital, building hotel brands, or both?

Jake Wurzak: So we've done three deals with Barry, and in two of them, he brought us in as a development partner to help him execute his vision. And that was a tough job because this guy is the best vision in the world for hospitality but could only sometimes do it himself.

But it is also when he leans in and becomes the most hands-on guy you've ever seen. And in one deal, he helped us out. He came into an investment that's phenomenal investment on concise notice. We had an investor who had some issues and took 50% of the deal, and we had hard money up, and they needed help to proceed.

It was like an internal issue on their side. And Starwood ended up coming into the deal, and obviously, they got excellent terms, but it's been a phenomenal partnership. They operate on a different level than many others, but they're very entrepreneurial and smaller from an acquisition and investment team than you think.

And we've learned a lot from them, just like they've learned from us. But one of the big things I've learned from Barry, particularly on the execution side, is you got to trust your instincts. You must be involved, but you must hire talented people to do it while you're away. And he's built this one brand out of one South Beach out of nothing, and now it's taking over the world in a very differentiated way.

Some deals they do with the fund, and some deals they manage for others. But there is a big responsibility in partnering with Starwood. Barry will call me and ask me how the hotel is doing. He knows his team aggregates all this data and wants to know how he invests. He is not a passive investor when you're around this guy.

He is always working, always thinking, and very curious and personable, and that's been part of the key to his success. I'm sure you've met successful people, and they're weird to be around. He has the personal touch but can also execute and raise capital like no one else.

Chris Powers: He could have worked with anybody. How did this partnership come to be? 

Jake Wurzak: Luck!

I was at a hotel in California with my family, and I was talking to the concierge. We knew this hotel, we were talking to them about this new restaurant I'd been to, and I was yapping away.

Suddenly, Barry checks in, and I see him from the corner of my eye. I'm like, oh shit. He is Michael Jordan to me. And he overheard me having this conversation. He travels with the chief of staff a lot of times.

 I'm going, to be honest. I started raising my voice a bit, and Barry heard what I was saying. He knew I was talking about hotels, and he had this guy come up to me and ask, who are you? I said I'm sure you want to know. Because I saw Barry lurking behind him, and we said hello. We talked for three minutes.

The next day, I went by the pool to read or do some work around three o'clock. And it was a weird time at the pool where only four lounge chairs were in the sun. And I took one of them, and then Barry came strolling out, and he had to sit right next to me. 

Here we go. Let's do it. So we have a great conversation. Barry was living in Miami and was living in Florida as well. So we're staying in touch, and it would be awesome. And then we kept talking, and it eventually evolved into conversations where he's like, Hey, why don't you do kind of what you're doing for your business for me, and let's try it out and see what works.

And forever grateful for him giving me the opportunity, but more so for his friendship. Because that's the most that I'm going to take away. It's not just the deal, it's the mentorship and the friendship that will continue. 

Chris Powers: Can you describe at a high level? I'm not asking for details.

When you decide to work with them, your role is X, and their role is what?

Jake Wurzak: We were a silver equity partner on the two deals we did that were very similar. Some of our sweat equity is converted to equity based on an inevitable return, and we had development fees for those two projects. 

Chris Powers: Was a building already in place, or are you leaving the ground with this thing? 

# So one deal we were going out of the ground. We were working in California, doing entitlements for three years. Oh. That was a big project. And then Covid hit, that was challenging.

 The other deal was that they bought this incredible hotel in West Hollywood, which would soon become the one in West Hollywood. It lacked any soul, terrible design, brand new, beautiful building in the best location in essentially LA. And came in and executed the conversion to one on a very tight budget.

And it was a lot of fun, a lot of travel. And the product turned out fantastic. And now the hotel is ripping and doing incredibly well. And then, the third deal, we are joint venture partners together. 

Chris Powers: I've been to the one in Miami, I've been there twice, and the things I remember are pulling in's pretty cool, especially in Miami because there's all these crazy folks and cars, and it's just like getting out of ballet.

Then you walk in, there are a lot of lounge seats to your left, and many people, like during the day, are working there, but I wonder if they're staying at the hotel. There were just people, and it worked. Then you get these keys that are little wooden circles.

That I'll never forget, that's the weird thing I like; you tap that thing everywhere you go. The rooms were excellent. A divider in the middle of the room separated this little living room, but the divider was the size of the bed. You could put stuff on it while lying in bed, which I thought was the huge shower. 

You can walk in the shower. I won't say anything. X-rated, and the people were terrific. I went to the rooftop like sushi and had a relaxed vibe, and it was like cool, like a Tuesday night, and bumping. We're there for a work deal.

Cool. Amazing. You could walk down to the beach. It was excellent, and one of my favorite hotel stays that I've been to.

Jake Wurzak: Having a hotel like that is the ultimate goal, or having resorts is the ultimate goal because you have such a captive audience, and you could generate so much revenue if you're doing things right.

You can have a big group convention with a bunch of guys in suits from Goldman Sachs, and then you can have some swimsuit model fashion show going on, and then they all converge, and you're charging all of them a ton of money. You're in a great location, and the resorts are so good. And what they created in that hotel is phenomenal.

And it was a lot of struggle. It came out of the great financial crisis. They were over budget and created one of the most successful hotels in Miami Beach. They sold it for a ton of money, and it's so successful. The new buyer, which everyone thought paid a lot of money, is now so money is good and is making a tremendous amount of money.

But it also put that brand on such a high pedestal that it became the calling card. Everyone wanted to work with Barry anyways, but now everyone could see what they could create and what they could do. By the way, I saw something more astonishing recently on that key card, so they now have little stickers to put on the back of your phone.

That does the same thing. So you can get into the room like everyone has a phone, you lose your key every time, and you just put your phone to the thing, and it opens up. So that's the new one. 

Chris Powers: Nothing is more annoying than the plastic card not working. It may work the first couple of times.

You go all the way up to your room, and then it isn't working, and you got to go down and get a new one. Or, there's housekeeping on that level, which you should tell me. Should housekeeping let me in?

Jake Wurzak: That's a security risk, Chris!

Chris Powers: I'll be like, please let me in.

Yeah, they'll let me in. But then I thought I could have gone into any of these rooms.

Jake Wurzak: A hundred percent. Yeah. It's the Texas accent.

Chris Powers: Yeah. It's the Texas accent. 

Jake Wurzak: But the other thing I learned from Barry is that you can have the most excellent deal, but if you suck at structuring, that deal's not good. 

And there are a lot of people in the hospitality business that have great hotels from the outside. It looks like a great business, but they need a better structure. Someone might make money, but the sponsor will probably not, and the setup could have been better.

Chris Powers: So, are you in the real estate business, or are you in the hospitality business? Or both? But like which one do you have to be better at? Like, which one can sync you?

Jake Wurzak: The hospitality business can sink you. Because hospitality investments are made based on the business's net income, your value goes down if you screw that up.

Chris Powers: Okay, so you have the operating business making money from the bar, the upsells in the room, and if you offer dry cleaning and all the stuff. Are you also owning the restaurants in these high lifestyles, or are you now partnering with restaurant operators? Like, What do you think about that?

When I walk into these, I sometimes don't know who owns this thing.

Jake Wurzak: Well, that's a good one. We like to operate all our food and beverage today, which is one of our skills. We excel in that, but we also want people to think that we don't operate it, that it's someone else because people have a stigma about going into a hotel restaurant, particularly if you have to walk through a lobby or there's a challenge to get there.

However, we are open to working with a killer in a specific market and structuring a deal. Many deals were management contracts or leases, but there needs to be more alignment there. What some of the more innovative brands are doing now is either forming a joint venture or doing it in a consulting agreement where you consult with a great local chef and restaurateur, and he creates the menu and the service standards and a lot of the culture and the uniforms and all the hard stuff.

But the staff all works for you. So you can flex that P and L as you need. But the essence still feels very independent from the hotel. And that's been a very successful model, particularly in restaurants that make a lot of money because then that'll come to the hotel owner, which puts up all the cost.

Chris Powers: What's the most fabulous hotel in the world?

Jake Wurzak: Oh wow. I like the hotel Bel-air for a luxury experience in the United States, in California. It's phenomenal and a piece of real estate that could never be recreated again. And then I love this hotel owned by a friend who passed away recently, an icon in the hotel industry called Brush Creek Ranch.

A month ago, he was sick. And he was an icon. But that is like the end goal.

You have your ranch and this excellent dude ranch you've created for others to experience. But then the great thing that happened to his benefit during Covid was they started making a ton of money. It used to be a loss leader, and it used to be a passion project. So that is my favorite hotel.

And then there are so many smaller hotels that do things well. One thing that I'm starting to appreciate more than I ever have is scale. Such size is starting to be a turn-off; the size and a resort because it's spread out and there are a lot of amenities. That's fine.

But these big city hotels, I'm less interested in these, and I'm more interested in the small ones that feel like you have this living room or this private club environment. That's where the most significant opportunity is.

Chris Powers: Have you ever stayed stated Blackberry Farms? I haven't either, but I've heard it's like the sister to Brush Creek Ranch.

Jake Wurzak: It is way more elevated and polished, but they have dialled in hospitality, from what I've heard to the next level, so much so where they're selling people the Kool-Aid. Like a house, you can buy a Blackberry Farm Ranch; they even sell Blackberry Farm Dogs now. Interesting, but the design aesthetic there, this residential feeling, and how they make each guest feel is why it's so successful.

And the great thing about those assets is that you don't need to renovate them every seven years to develop something new. You must do one little thing differently every time and keep improving and compounding. So that's the fun stuff. But I think you got to have a mix of those, and you got to have a mix of our deals that we buy to discount that is just value-added, that is just fucking smart and make a lot of money.

Yeah. And we layer those in. Too many people get focused on, like, I'm only the cool guy, and I'm only going to do these fantastic hotels. Those are great. You can make money on those, but why exclude enhancing something more basic or a little more down the fairway? You could still crush those deals too.

So we like doing them both.

Chris Powers: And on those deals, we talked about. Those values add deals are typically not lifestyle properties; you're buying more.

Jake Wurzak: It could be. So like, even on our ones that we just bought a Doubletree recently, we will make it one of the most remarkable double trees out there.

We're adding a bar out by the pool. We are adding an arcade for kids. We're redoing the lobby. And the lobby looks as if it's in Boca Raton, and the lobby looks as good as any hotel in Boker will look. The renders look that way. And that's the goal. So we're elevating it to a level because some of these hotels don't have a rate ceiling, so you can charge if you're offering a better product.

And investors love those deals because they are so easy to explain. Because you walk into the hotel, everyone can see that it sucks now. And you could show them what it's going to be. 

Chris Powers: All right, let's bring it home, Interest rates are up, but the hotel industry just went through Covid.

They have their battle scars; they've got tough. What do you think hotels will look like as an investible asset class over the next like five years?

Jake Wurzak: If you look at long-term rates. They're, and in and inflation, it's at the 10-year break, even inflation rate, it's going to come back down over the next ten years.

It will average below 3%, according to the St. Louis Fed, which puts out this data. And if you look at the ten years, that's a good hedge about where the Fed funds rate will be over time. But right now, it is challenging. We have caps kicking in as we've never had a cap that kicked in before, and now we're getting paid there.

We are selling two hotels right now with in-place debt. And that is a reasonable opportunity for someone because they'll pay a lower interest than anyone else would pay on a new deal. In a new deal, you have to float right now because we're closer to the peak than the trough.

And that might pay, but this will be the one-two punch for hospitality. We're seeing it, and we have one or two hotels where some of our cash flow evaporated because we're paying double or triple interest based on how quickly rates have risen.

Barry has been very outspoken about this, and we will have conversations with banks again. And the conversation is very different because no one underwrote this, and no one expected this to happen this quickly. And this is where some compromises will happen because it's not something that, The real estate investor, the operator's doing wrong.

I also don't know that it's a long-term thing, but there's a lot of conversation on Twitter. Everyone is the most brilliant guy in the world on Twitter. Everyone's been calling it, knows, and has plenty of capital ready to deploy.

Everyone is ready to do that. Which I find interesting, but this whole pencil's the down mentality. As real estate investors and operators, we need to find ways to make money and find deals in all markets. You look at Sam Zell coming from an interest rate environment of 17, 16%.

I mean, he was able to figure it out. You and I can figure out how to do successful deals during this time in our speciality, our vertical. And you could structure it differently. You're slower and buy it at a more significant discount. But it doesn't mean you sit around, do nothing, and wait for a fund to start acting. We must be the first mover and let the funds and institutions follow. 

Chris Powers: I agree. Is there anything, as you look out on the horizon, maybe it's technology, maybe it's just new products, is there any new revenue streams or ways to cut costs that are glaringly obvious or that are coming as AI?

Or is there anything that's going to make running a hotel business, you know, more profitable that needs to be put in play? 

Jake Wurzak: AI will help revenue management. The other thing is remote work is going too. Help hospitality because payroll is our most significant expense. So what jobs could we do in another country we're currently doing here?

There is a way to excel like hotels were stuck 20 years ago. So, new hotel technology was available everywhere else five, ten years ago, and it's just deploying them. That's an opportunity that I see, and the enormous opportunity I see in this environment is to raise money, and we are raising a new fund.

We'll start raising in a month or two to get ready so that you are ready for the deals and the opportunities that might come. And you do not have to raise capital, also trying to source deals. 

Chris Powers: Right. All right, my man, this was fun. 

Jake Wurzak: You're super impressed, by the way. I had the opportunity to walk through your office, and I am blown away by the level at which you're operating on how you think of the world personally and professionally. 

Chris Powers: I appreciate it. 

Jake Wurzak: Glad to count you as a good friend now. 

Chris Powers: Same thing. It's been a joy to get to know you. I look forward to seeing your digs. Whenever I get out to Florida.

Jake Wurzak: You're going to come. 

Chris Powers: But thank you for coming to mine and for your words. Appreciate you. Thanks, Jake.

Jake Wurzak: Thanks.