Tony Unkel: Hello, everybody, thank you for joining us for today's webinar, Hospitality Real Estate Investments Using Data to Make Smarter Decisions.
Tony Unkel: Before we get started, I do have to read a brief disclaimer. The Entrust Group, known as Entrust, does not provide investment advice or endorse any products. All information and materials are for educational purposes only.
Tony Unkel: All parties are encouraged to consult with their attorneys, accountants, and financial advisors before entering any type of investment.
Tony Unkel: Today's agenda, we will be reviewing the hospitality real estate cycle. We'll explain catalysts shaping the market.
Tony Unkel: Compare performance across industries.
Tony Unkel: Learn about the risks and how to best mitigate those risks.
Tony Unkel: Optimizing strategies with technology, and at the end, we will have time for a question and answer period.
Tony Unkel: My name is Tony Uncle, and I will be your host. I am in my ninth year at Entrust, and I pride myself on educating investors and professionals on tax-preferred retirement accounts in the alternative investment space.
Tony Unkel: For those of you new to Entrust, I'll give a little brief background on who we are. We are self-directed IRA administrators, we have a knowledgeable staff, many with the CISP certification, and we do hold these monthly educational webinars.
Tony Unkel: We currently have a little over $5 billion in assets under administration, with 24,000 active investors in year 43 of business, and we do provide one single point of contact for all of your Entrust needs, depending on the region of your country.
Tony Unkel: Now I'd like to introduce you to Russ Ficker of AWH Partners, and he'll be taking it over from here. Russ, the floor is yours.
Russ Flicker: Thank you, appreciate it. Good morning, or good afternoon, depending on where you are.
Russ Flicker: I'm Russ Flicker, managing partner and co-founder of AWH Partners. We started this business 16 years ago in the Great Recession. Myself and another partner were at the Blackstone Group before that, and our third partner was at the related companies.
Russ Flicker: We're hospitality specialists, but we do try to take a really macro and micro view.
Russ Flicker: of investing. And so, I think it's first worth starting to talk about, a little bit about where we are in the cycle. And while no one knows the future, and certainly we don't pretend to, to have a sense of exactly where things are going, we do try to understand history and where we were.
Russ Flicker: in 2008 to 2010, I was at the Blackstone Group at the time, and we saw, obviously a very significant cycle unfold. It started with the global financial crisis.
Russ Flicker: And government bailouts, interest rate cuts, which led to a real, interesting buying opportunity.
Russ Flicker: And in 2011 to 2015, and really it went a little bit further than that, but that was the really… the most interesting buying opportunity in real estate across sectors.
Russ Flicker: now what we're seeing is, by 2016, 2017, most institutional investors were concerned about a peak, and it didn't happen for a while, but they weren't concerned about a recession, recessionary pressures, and it took a little while to play out. Of course, we had COVID, which no one was anticipating.
Russ Flicker: But by 2017-2018, at NWH, at my company, and elsewhere.
Russ Flicker: Many of us were preparing for a potential recession, not COVID. And in fact, at that time, my company ended up buying a number of hotels with 10-year debt, even though we're traditionally holders of a 5-year business plan.
Russ Flicker: And the reason we did that was we were concerned about the uncertainty, and we didn't want to get caught in a downturn, right when you thought you might exit an asset. And in fact, that turned out to be super helpful.
Russ Flicker: Through COVID for those assets, and some of which we still own today, because we had historically, inexpensive debt, and it helped us move right through the COVID… the COVID cycle.
Russ Flicker: And so what no one expected, of course, was in, in, you know, April, May of 2020, COVID hit, one, one sort of,
Russ Flicker: joking anecdote I'll make is that I… or I'll tell you, is we started the business and focused on hospitality in 2010,
Russ Flicker: Because we thought a 30-35% reduction in REVPARs, in revenue for hotels, that actually happened in that 08-09-2010 timeframe was… it was, at the time, the biggest downturn in the hospitality industry had ever faced.
Russ Flicker: So we started our business in that downturn, thinking, this is the worst it can ever be. And of course.
Russ Flicker: Covid, taught us that it could be much worse. So… but post-COVID, in late 21, early 2022,
Russ Flicker: There was thought that, hey, we had gotten through the worst of COVID, and we were going to start to, see an improving dynamic, but what ended up hitting was
Russ Flicker: record inflation, which led to interest rate hikes. Ultimately, regional banks had challenges, and then… and then tariffs. And that all kind of led to what, in the real estate business, across sectors, but absolutely in hotels as well, was
Russ Flicker: really historically low transaction volumes. So people had not been trading hotels. Now, for multiple years, we've had historically low transaction volumes, where owners, like my company and many of us.
Russ Flicker: are hesitant to sell, looking for a better opportunity to sell, and there's been a lot of credit available, a lot of debt alternatives available, and so we weren't forced to sell. We were able to delay selling, refinance, and find opportunities.
Russ Flicker: And that's been going on now for maybe two and a half years. And we do see, while we can't predict exactly when it happens, we do see the next couple of years
Russ Flicker: be the next opportunity to lean in, where folks who have held assets for much longer than expected, will be forced to sell. We'll talk a little bit more about that.
Russ Flicker: Let's see here… The catalysts that we think are leading to these opportunities now, are… are multifold. One is maturing debt, and debt… most of the, of the debt that people, borrow, particularly institutions, is flexible debt
Russ Flicker: 3-5 year term. But what's happened is, while debt has been plentiful, little by little, lenders have, have been getting a little bit tougher on their underwriting. And there's two
Russ Flicker: two pieces of debt. If you have cash-flowing assets, there is a lot of debt chasing that, even though underwriting has gotten harder, and what does that mean?
Russ Flicker: They're requiring higher debt yields, they're being a little bit tougher on their loan-to-value, and so more and more assets are challenged on what I'll call as a cash-neutral refi, and so if you have to put in money in order to refinance, there's more pressure on sellers to exit. They're also carrying costs.
Russ Flicker: Interest rates have gone up, and amortization has gotten tougher, and so the cost to carry your asset has gone more and more expensive.
Russ Flicker: If you have…
Russ Flicker: assets that are Hilton or Marriott branded in the hotel business, the franchise pressure to increase, spending on a hotel, and have what we call PIPS, which is a property improvement plan in the hotel business.
Russ Flicker: But the pressure that Hilton and Marriott is putting on you, or IHG, or Wyndham or otherwise, to improve your asset.
Russ Flicker: not only pressures you to spend money, but also means when you're looking at lenders, the lender's pressuring you to spend the money that the franchisor wants you to spend. So that's part of the capital needs.
Russ Flicker: And this is true, again, not just in the hotel business, but particularly true in the hotel business.
Russ Flicker: And then a last component here is fund life. And so, whether, you know, for us, in some cases, we are… we are, buying assets, and we're partnered with large hedge funds or private equity companies.
Russ Flicker: like Apollo, or BaoPost, or insurance companies like Star,
Russ Flicker: Or, or sometimes family offices.
Russ Flicker: the fund structure, often with our LPs, with our limited partners, requires them to exit at some point. And you see that if you're investors in private equity funds generally, that no one's gotten the money back as fast as they wanted, and there's increasing pressure to exit investments.
Russ Flicker: All of that has led to what I think is the pressure, to continue to exit
Russ Flicker: and see more transaction volumes.
Russ Flicker: When we typically underwrite to a 4- or 6-year hold, or a 5-year hold, and the typical asset life
Russ Flicker: Pre-COVID may have been 4 or 5 or 6 or 7 years. Now, folks are owning hotels for 10 or 12 years.
Russ Flicker: Much longer than their investors want.
Russ Flicker: And look, this is… this slide just talks a little bit about how we, and not just us, but how one should approach an institutional-level investment. First, you need to obviously look at the market analysis. What does the market look like?
Russ Flicker: And now we're not talking about macro. You know, certainly there's a macro view of the U.S, but we're talking about not only a view of the market, but a view of the sub-market. Where are you, literally? And whether you're in, you know, Seattle or San Francisco, and you're focused on
Russ Flicker: International travel, particularly from Asian travel.
Russ Flicker: whether you're focused on, you have a ski resort in Vermont, and you're worried about Canadian travel, what does the market look like on a look-forward basis?
Russ Flicker: And bringing together both
Russ Flicker: both information you can buy in the hotel business that you can subscribe to, and also some proprietary information. Using technology, we're going to talk about this more. I think at the high level, those of us who are investing at a very institutional level, we have a lot of technology and a lot of data that backs us up. Doesn't mean we're always right.
Russ Flicker: But we're trying to limit the subjective
Russ Flicker: piece of our investments. And so any piece of that that we can take from subjectivity.
Russ Flicker: where, in my head, I'm like, oh, I think Dallas is a great market, and then dig in and make it more objective. Okay, well, what sub-market in Dallas, and why? And let's back it up. What was the last…
Russ Flicker: 20-year and 10-year rolling revenue carrier. What has growth been over the last
Russ Flicker: 5, 10, 20 years. What is the outlook, let's say Moody's outlook and otherwise looking forward.
Russ Flicker: And how do we view the different margins we should be able to achieve? You know, is the right revenue margin, or GOP margin, or food and beverage margin? Let's compare it against other assets. Let's really get objective as much as we can.
Russ Flicker: Risk management, what could go wrong, what's the downside analysis? We'll talk more about that. And then, when you actually own an asset, how do you… how do you really optimize its value over time?
Russ Flicker: This is a little bit more about where, you know, some of the things we've been talking about. First, capital markets dislocation. You know, there are times when you buy an asset that is itself troubled.
Russ Flicker: And we've done a lot of that in our business, particularly last cycle, which is buying an asset that needs a massive physical repositioning, a renovation, a change of flag, a, you know, renovate the rooms, or the meeting space, change the restaurants.
Russ Flicker: And we'll still do some of that, but that was a big piece of our last cycle. In addition to operational challenges, it's just not being run well, because perhaps they have the wrong focus for the asset, or they're not… the manager is not attuned to managing
Russ Flicker: full-service hotels versus other hotels, or in this market, this is their first asset they've owned, you know, on the West Coast.
Russ Flicker: But also, there's capital markets dislocation, and we're seeing a lot of that now, which is…
Russ Flicker: pressure on sellers to sell. Maybe the hotel itself is… is functioning well, but it was bought with, you know, at much too high a price, and as they've tried to hang on to it, the leverage level has gotten more and more expensive, and so it's not cash flowing because
Russ Flicker: You have a very expensive loan because you're over-leveled. And there's a lot of that.
Russ Flicker: The hotel business, in many ways, has
Russ Flicker: particular challenges that are faced by other real estate segments, but are worse with hotels. And that's the example of this cost pressures. While every real estate asset class has payroll.
Russ Flicker: none has a payroll as large as hotels as a function of the property. So, we have a lot more people working in our assets than you would have working in an office building or in a multifamily building. Now, the office building has all of the tenants, but that's not the owner of the building. And so.
Russ Flicker: Payroll, taxes, utilities, you name it, insurance, those have all moved up dramatically.
Russ Flicker: And by way of example, we own a lot of Hilton assets and a lot of Marriott assets, and so we partner, we win awards with these folks, and we go to their owners' conferences, and we meet with their CEOs and their other C-level employees.
Russ Flicker: And Hilton and Marriott will say the same thing, which is 2025, across North America saw revenue increase.
Russ Flicker: maybe about 1% revenue, we call it REVPAR, which is Revenue Per Available Room, but a 1% nationwide growth of revenue. But with 1% of revenue, you actually
Russ Flicker: you may have treaded water, or you may actually lose profit in 25 if you had 1%, because payroll's up a lot more than that. So is taxes, insurance, and utilities. So, how do you run things most efficiently?
Russ Flicker: and restructure, and maybe work with, you know, with fewer, fewer employees, or focus different… do you have group business or transient business? How do you optimize, your revenue and cost structure? And in a full-service hotel, there is a lot… there are a lot of choices to make.
Russ Flicker: We talked already about, high rates and, and the wrong capital structure, and, and interest rate, pressure.
Russ Flicker: The rest of this is sort of similar, but margin… margin distressed sales are really where… where you, you have assets that simply will require more money to get where they need to go, either because a new capital structure, a new lender, or they need to reinvest in the asset.
Russ Flicker: This is an interesting chart. I like this because it just puts a fine point on some of the options out there, and we use multifamily as an example. And multifamily's been great, so there's nothing wrong with multifamily, but hospitality is a higher cap rate asset.
Russ Flicker: Which means that, you know, you expect better, cash flow because it's a riskier asset than multifamily. And that cuts both ways. On the one hand.
Russ Flicker: You know, you are getting better cash flow from hotels because there's the perception that the cash flow is not as robust and not as certain, and that's fair. At the same time.
Russ Flicker: The way the math works, and I'm a math guy, so forgive me, but the way the math works is if you buy something for a 10 cap.
Russ Flicker: Which means, essentially, it's a… it's the reverse of a multiple, but let's say a 10 multiple, on cash flow. So if something was a million dollars of NOI, you pay a 10 cap, you'll pay 10 million for that.
Russ Flicker: Whereas in multifamily, you're going to pay a lot more for that same million dollars of NOI, because it's a much higher multiple, or a much lower cap rate.
Russ Flicker: But, if you're wrong, and the 10 cap becomes an 11 cap, or the 10 multiple becomes a 9 multiple, that difference in value is not nearly as much as it is on multifamily, where over time, in certain markets, you were paying
Russ Flicker: A 5 cap, a 4 cap, you're paying a 20 multiple on cash flow. And if values move.
Russ Flicker: which is cap rates or multiples move a little bit, it's a much bigger swing in multifamily. And we've seen that, both because multifamily did have a little bit of a movement, of an expansion,
Russ Flicker: on cap rate, and that all goes to the perception of the likely growth in profits. So, long story short here, one advantage of hospitality, if it's done right, of buying hotels, is you do have better cash flow in place. And if you can get some cash flow during your whole period.
Russ Flicker: You've reduced your risk a little bit when you exit, as opposed to getting most of your cash, or all of your cash, just on the exit.
Russ Flicker: It's like a zero coupon bond. These aren't bonds, though, so the zero coupon bond, if you get nothing along the way, you have to hope that the value's there at the end. And the more cash you get along the way, the less risky the end piece is. And hotels do pay a higher cash flow, and a particularly high cash flow today.
Russ Flicker: you know, hospitality, one of the things we like about it, and I would say, jokingly, I've been in the business a long time, you know, there was a time when retail was seen as this, you know, this, this, you know, one of the best asset classes.
Russ Flicker: And I can only say teasingly, because hotels have ebbed and flowed in favor, but the dot-com craze came, and retail seemed at risk, and of course, there's a big… there's a great place for retail in your portfolio.
Russ Flicker: But retail now is sort of adjusting to the new world where online retail, you know, takes a big share of that piece. And I think Office was seen as, you know, as one of the safest, and of course, is a great spot for office.
Russ Flicker: in anyone's portfolio, but then COVID set that on its head a little bit. What we like about hospitality is, is, first of all, over time.
Russ Flicker: People have continued to spend a bigger and bigger proportion of their discretionary income on travel.
Russ Flicker: That's not just hotels, it's airlines, and it's travel-related. But travel continues to be a big place where people spend, and while, you can see from this chart, you know, there was a blip, and COVID hit that, we are right back on that path to that continuing to be a big piece of people's wallets.
Russ Flicker: And I will say that we believe confidently that young people, it does not seem like that's changing. If anything, that could grow, but we feel very good that people continue to want experiences, so we're happy about that.
Russ Flicker: You know.
Russ Flicker: to the extent that AI, we're all thinking about how that changes our world, I don't think that changes that. In fact, if anything, maybe that improves that picture in terms of people wanting to travel more and have those experiences.
Russ Flicker: And the other thing I'll say about hotels today.
Russ Flicker: Is that there has been historically low new supply of hotels.
Russ Flicker: Nationwide. Of course, there are… there are exceptions to that. There are places where there's a lot of supply of hotels, but those are discrete places. And, we invested in Nashville.
Russ Flicker: We actually invested in Nashville in 2019 with 10-year debt, knowing that supply was an issue. But good growth there, so that's an example of where there has been a bunch of supply, and you need to understand that.
Russ Flicker: But in general, less supply, and that makes sense. Very high interest rates, and the cost of construction, has gone up, and so what, you know, a hotel room that used to cost you a
Russ Flicker: $150,000 to build somewhere now costs you $250,000 to build. So, that helps in terms of the future growth of hospitality.
Russ Flicker: Look, there are a lot of risks, and I only mentioned a few of them here, and there's risks to hospitality investing, and many of these apply across the board. You know, the single biggest building block we use is sub-market growth.
Russ Flicker: our guess on… and I say guess, because it's an educated guess, but it is a guess, on what that particular sub-market will grow at.
Russ Flicker: the whole, you know, all the hotels in that sub-market over the next 5 years or so. And we can look at historic growth, which we do. We can look at forward-looking data from groups like Moody's, etc, that talk about what the underlying GDP growth is expected to be in that sub-market.
Russ Flicker: Which we do look at. And then we spend a lot of time kind of digging in ourselves on what… what are the other hotels in the market, what does the supply growth look like in the market, and not just how many hotels, or how many hotel room keys.
Russ Flicker: But are they similar brand? Are they unbranded?
Russ Flicker: what scale are they? Are they four-star hotels? How far are they from our hotel? And there's a lot of data about hotels that are being constructed long before they open, so you can kind of evaluate that over time, which is very helpful. And then, certainly, we do have some of what I'll call the subjective, but because we own a hotel management company, and we have access to, you know, to not only thousands of employees, but thousands of hotels in terms of data.
Russ Flicker: We… we then will overlay that and say, does this seem a little bit risky or a little bit… is there more room here? Is there more upside optionality to the sub-market growth, or downside optionality? Where do we think we're more likely to be wrong on this submarket?
Russ Flicker: comparable revenue penetration, and that's just about, how our hotel should do relative to the other hotels. So the sub-market's gonna grow here, but our hotel's a little bit older, so it's gonna… it's gonna trail down. Or, our hotel's the newest hotel in the market, and nothing else is being built.
Russ Flicker: Or we're going to renovate a hotel, and we're going to add a new restaurant. How do we think that will play against the submarket?
Russ Flicker: Physical plant, I did mention renovation, but this is not just
Russ Flicker: This is both the customer-facing, you know, are there shiny new beds and TVs and whatnot, and signage, but also, what about the roof? What about the HVAC system? You know, kind of making sure
Russ Flicker: You know, hotels get a lot of wear and tear, so we have to make sure that they're in good shape and they're run well, because you're gonna need money to put into that.
Russ Flicker: Operating cost pressure is different, not only for different types of hotels.
Russ Flicker: 5-star hotels that have many more employees in them, and a lot more payroll risk. Limited service hotels have less payroll risk. There's insurance risk. Are you in Florida? Are you in California? What does that look like?
Russ Flicker: Taxes, minimum wage, some of those are, are very market and sub-market specific.
Russ Flicker: And then lastly, evolving guest preferences, which we spend time thinking about, although we're… we don't have a crystal ball. So we're just thinking about, is this the kind of thing, directionally, that we're… we're going to capture? The, you know, are we targeting young people? Who are we targeting? Who's the customer? And there's not one customer.
Russ Flicker: Just to be clear, there's lots of them, but where is the… what does that look like? What's the segmentation look like? So that we… we think we're mainly targeting these customers, and this asset seems to be fresh and correctly targeting them. So we spent a lot of time on things like that.
Russ Flicker: This is worth talking about for a moment, and I'll just take a moment here to say, and I appreciate, I know I'm rambling, I hope you have questions, I'm looking forward to a lot of questions if you have them, because I don't want to just talk at the screen. But I will say.
Russ Flicker: at the high level, and we're playing… we've been very fortunate. I joke that I'm the Forrest Gump of real estate, that I've… there's pictures over the last, you know, 30 years of very famous and infamous people in real estate, and somewhere in the corner of the picture is my head, because I've been… I've been fortunate enough to work with a whole host of very sophisticated and well-known investors.
Russ Flicker: And at that level, where we invest, at that sophistication level, everyone has access to data, and so I don't want to pretend that we're the only ones. I think what we've done that we're proud of is
Russ Flicker: is two things once you say, hey, you have the most sophisticated data, and you… that everyone has access to at that level. The two things that I think make us different are, one.
Russ Flicker: that we layer in a lot of proprietary data, the thousands of hotels that we've looked at over the last 16 years, and what that means is, if I'm looking… if my team is looking at buying a hotel and, you know, let's say it's a Marriott-branded hotel in the southeast.
Russ Flicker: We're able to call up 40 other Marriott-branded hotels in the Southeast that we've looked at.
Russ Flicker: and not only look at their RevPAR, but their GOP margin, their F&B margin, and…
Russ Flicker: how they grow, and how much profit per room they made. And what those things do is help you put caps and collars on realistic execution, because sometimes someone's selling a hotel, and they'll slash staff just right before the sale.
Russ Flicker: And so everything looks really shiny and more profitable, and you think, hey, that's not really sustainable.
Russ Flicker: So that kind of thing, we layer in our proprietary information.
Russ Flicker: And the other thing we do that I think is special is, we've automated so much of this that our analysts, when they look at a hotel.
Russ Flicker: We'll pull up the hotel in Excel, and the entire model pre-populates. And it pre-populates because it uses our algorithm on sub-market growth based on Moody's forward-looking growth and 20-year rolling CAGRs on past growth and supply and all the things I talked about, and it puts a cap and collar on sub-market growth.
Russ Flicker: It puts, based on the brand or the age of the hotel, the last renovation, it automatically puts on what penetration we should have. This hotel, how should this hotel do against that sub-market? What should the margins be of F&B and GOP margins? Now, of course, it's not a filing model.
Russ Flicker: But it means that our analysts start right away with this baseline, and so before they know, before they're actually going to share a model at investment committee, or even spend time, it needs to look pretty interesting relative to what the broker guidance on price is.
Russ Flicker: And we track everything, and so I'll just say anecdotally,
Russ Flicker: in, you know, 22 and 23, our average bid, because we bid on hundreds of hotels every year, and hopefully we're buying a couple, you know, we're sharpshooters, but we look at a lot. Our average bid, as a percentage of broker guidance.
Russ Flicker: Might have been, you know, 70%, 65% average bid. Now we're up to 85%, 88%, which means we will buy some, and we did buy one last month. So, you know, we're just… we track all this stuff. So we don't want to… what that does is.
Russ Flicker: it lets us, if we're looking at 100 hotels in our pipeline, it helps us… these are the 3 you really should focus on. These are the 3 that are worth it, that are closer. And so you can see all this kind of compliance tracking and all this that's done.
Russ Flicker: Automatically, which we're excited about.
Russ Flicker: Again, this is a little bit of what I just talked about, how you use that data to… and market data and hotel data and data integration to really quickly, hopefully quickly narrow down, so that you can focus your time
Russ Flicker: on the assets that have the most likely chance of meeting your screening. And look, I would say that
Russ Flicker: we probably know too much, which is why we have not bought a lot of hotels in the last few years. You know, and in the last 3 years, we've bought 2 hotels. That's not a lot, it's because we know too much, and so we don't like a lot of hotels. But anyway, we feel pretty good about that.
Russ Flicker: This is a… this is interesting, there's two different kind of… we think of two ends of the barbell of hotels you might purchase, and that is the income hotels are hotels that are throwing off good cash-on-cash income.
Russ Flicker: That don't need to move up that much, that don't have that big…
Russ Flicker: renovation, repositioning, or the operational repositioning. And those are really the hotels we see the most opportunity in today, as opposed to, as I referred to, the value-add hotels, which is what we really did a lot last cycle. And we hope we find some of those this cycle, but they're harder.
Russ Flicker: is where you need a giant repositioning, where you're taking NOI from 0 to 10, as opposed to the income piece, where you're taking NOI from 3 to 3.5,
Russ Flicker: And and there's cash flow along the way. And the reasons, that those income, hotels have better, better opportunities today are, you know, a few-fold.
Russ Flicker: One is interest rates are so expensive that the 18 months it takes to fix a hotel now has a very big drag on cost, right? Because it's much more expensive, and in 2010, interest was so cheap that that first 18 months where you weren't making any income didn't cost you as much.
Russ Flicker: Obviously, the actual cost of renovations has gone up meaningfully. That's another reason. And a third thing that's worth talking about… oh, I'm sorry, third thing is that
Russ Flicker: that debt funds and lenders all are chasing the income, and they really don't love the value-add today, so it's particularly expensive, and the income is where credit is abundant, and so you can get pretty inexpensive accretive debt. And then the fourth thing that I think is interesting and worth noting is
Russ Flicker: our… our typical partners, historically, these large funds, debt funds and… I'm sorry, not debt funds, private equity funds and hedge funds, insurance companies.
Russ Flicker: They used to have minimum equity checks of
Russ Flicker: 10 or 15 or even $20 million, and now they've sort of been a consolidation, and now they want 50 or 100 million dollar equity checks. And so we see opportunities where you can buy a $40 million hotel at 50-55% leverage.
Russ Flicker: And still get a pretty high, not only cash-on-cash return, but total levered return. Surprisingly high for less risk. And so we see that as the biggest opportunity, you know.
Russ Flicker: You know, in 26 and maybe 27.
Russ Flicker: And let's look at this next one. So, again, we touched on this a little bit, which is… here, you can see from… from June of 22 to… so that… that two-year period-ish.
Russ Flicker: Here, we signed, confidentiality agreements for 723 hotels, and you can see here we did 200 miles, made 100 offers, and we bought one deal in that period of time. It's just funny, we just try to give you a sense of what that process looks like.
Russ Flicker: And that's, I think, how you… look, we hope the process gets to, you know, we like, you know, we get to do a few hotels a year, and actually, right now, we do think there's a
Russ Flicker: this year, next year, we think we'll do a couple of hotels a year, or three maybe hotels a year. We bought one already this year, because we see this opportunity. But as we tell our acquisitions folks, you're paid to underwrite, and to source, but not to buy, because if deal doesn't look good, let's not buy it.
Russ Flicker: Let's see here… yeah, this is sort of, wrapping up. I know I was running on, Tony, you know, I guess, I don't know if you want to take it from here, but I know we'll, we'll, we'll move on to Q&A.
Tony Unkel: Thank you very much, Russ. We're just gonna have a brief poll up quickly, if you feel free to answer. After our Q&A, we're happy to share contact information with Russ and his team to answer any questions we can't answer online.
Tony Unkel: We'll leave this up for a couple of seconds, and then I have a few more slides, then we'll hop into our Q&A.
Russ Flicker: I know I was talking quickly, everyone. I apologize for that. Talking at the screen is not optimal, but hopefully… hopefully I gave you a sense of,
Russ Flicker: Of how we view the business, and how, you know, how…
Russ Flicker: How you might improve, your own… View of investing?
Tony Unkel: Alright, great. So, getting started with Entrust is really simple. If…
Tony Unkel: you're interested in investing in privates, you can simply open an Entrust IRA. You can fund your account via a transfer, moving money from an existing IRA into your self-directed IRA. You can do a rollover, that's accessing funds in an old 401K or company retirement plan.
Tony Unkel: And then you can direct us to purchase that asset on behalf of your retirement account.
Tony Unkel: What's next, FranTrust? We will be sending you the replay and additional resources.
Tony Unkel: Our follow-up email will include the presentation you just saw with the slides and additional educational pieces, and then please don't forget to register for the March 26th webinar. We're going to be covering what's new with real estate investing in 2026.
Tony Unkel: If you would like some more information on self-directed IRAs in general, please visit our website, theentrustgroup.com, and navigate your way to our Learning Center, where there is a wealth of information in there for you.
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Tony Unkel: Now we can go over to the Q&A portion of the presentation. Feel free to type in your questions in the chat box, and we'll get to as many as we possibly can. And I'll be directing the questions for me directly, or we'll have Russ answer the ones directed at him.
Tony Unkel: First one for you, Russ, is how do you feel about wellness incorporated into a boutique hotel, and how additive is it?
Tony Unkel: to… Revs towards the revenue.
Russ Flicker: Yeah, look, great question. I think, it depends on the hotel and the market. So, some of the big brands have tried this, I'd say with, with modest success on one of the big chains.
Russ Flicker: You've seen that at West End, and some places will put a Peloton in your room, or they were… briefly, they were giving you, you know, they'd give you shorts and stuff to wear. People have tried different elements of this. I will say that we own some regional resorts, and it's a big deal. If you're going to
Russ Flicker: Colorado in the summer, or still Vermont in the summer, it's a big deal. And knowing the market and the nature of the hotel. Leaning into wellness, either through the spa, through activities you can do, even the menus you create on F&B, it can be a big deal.
Russ Flicker: Other places, I'll say, depending on the brand, If you're at a more…
Russ Flicker: Nothing wrong with this, but a more generic brand that a Hampton or even a Doubletree, or a Sheridan, it would need to be in the right location for there to be value there, I think. I do think I'll also say that that is where people are going, so the young people care about that a lot.
Russ Flicker: And as they become a bigger piece of the wallet that you're collecting, I think we'll continue to move in that direction.
Tony Unkel: Great, thank you. Another one for you. How do you see airport-adjacent hotels to size up in this asset class?
Russ Flicker: We own several airport hotels. We own the Marriott at Burbank Airport, for example.
Russ Flicker: And I think, look, it's a mixed bag. I think we prefer to own hotels that are not just airport hotels, and that is to say they have adjacency to airports.
Russ Flicker: Which I think is helpful, and you… there's… there's crew business you can get, and there's regular business you can get, but we like when a hotel is also in a neighborhood, in a community that makes sense. So in Burbank, for example.
Russ Flicker: We're right near the studios, Netflix, and Amazon, and Warner Brothers, so there's really a lot of base business there, but also, we're near Burbank Airport, and so taking advantage of both of these helps. One last note is.
Russ Flicker: One of the reasons we don't want that to be a, you know, too large a piece of the business.
Russ Flicker: Is… we can see in recent years, there have been times when airport traffic becomes a real problem, where you… where if you're very reliant on the airport in times of… of international chaos, or just cross-border disputes.
Russ Flicker: It can be, it can be an issue when, when airports, traffic comes up or down for reasons outside your control.
Russ Flicker: But we do like airports. The other thing about airport hotels is
Russ Flicker: And this is true of full-service hotels generally, and the reason we like them is you can be better or worse. And I say that because it's not a commodity product. If you have a…
Russ Flicker: a roadside Hampton Inn, which is a great business, nothing wrong with that. There's, you know, there's the right way to operate that to a very tight degree. It's gonna, you know, the manager, if they do a good job, should all manage it within a very tight margin.
Russ Flicker: Whereas, if you have a large hotel that has meeting space, and restaurants, and maybe a spa, and maybe a bar, and other things.
Russ Flicker: Running it well is hard, and it's imperfect science, which means we think we can do it better than others. What kind of groups do you take in? How early do you accept the group, and how many rooms do you give them at what price?
Russ Flicker: You know, what we call B and C, which is banquets and catering revenue, that's a kind of food and beverage, is very high margin, whereas a la carte.
Russ Flicker: breakfast is a very low margin. So how do you maximize profit when you're thinking about renting rooms out, capturing group business? It's complicated, and we like that.
Tony Unkel: Great, thank you. What kind of advice would you have for hospitality real estate in rural areas of third world countries?
Russ Flicker: Oof.
Russ Flicker: Good question, and I would say that we are… I'm not the expert outside the U.S, and I do think… I do think I'm an expert inside the U.S, but I would say that it seems like
Russ Flicker: if you're investing in a rural area outside the U.S, this is kind of true of a rural area in the U.S, but if you…
Russ Flicker: the high-risk piece is how much that market might change. Now, maybe there's a lot of upside, because it's already rural, so any… any growth
Russ Flicker: Probably it gives you a lot of upside optionality, as long as you're
Russ Flicker: buying it off of existing income. So… but you need to be careful about what could change that makes it worse.
Russ Flicker: new roadway, new, new, you know, new highway, one new hotel, you know, might be a big problem, you know, the smaller the market. And then internationally, it's a question… the other question you have to layer on is just how, if…
Russ Flicker: If legal or political ramifications could change the dynamic.
Tony Unkel: Great, thank you.
Tony Unkel: I have another one for you. How… how do you feel about the upstate New York locale?
Tony Unkel: say, within 2 hours north of the city. Is it a cluttered market, or do you think it's inviting up there?
Russ Flicker: Well, look, I live in Westchester, and we own a hotel in Lake Placid, which is much further up, obviously.
Russ Flicker: So… but I do think it's a good… I think upstate New York can be a good market. There's… there is a fair amount, depending on what… what… what city and town you're looking at, there is a fair amount of supply there, so you need to be cautious about your, you know, your absorption of that supply.
Russ Flicker: But I feel pretty good about it. I also would say that… that a bunch of towns in upstate New York, several towns, have,
Russ Flicker: sexier hotels now than they've ever had, and branded and interesting hotels, which means more people are looking. A different customer is exploring and considering those markets now for the first time, and so that's a really interesting opportunity.
Russ Flicker: So I, you know, I… I don't… I like those markets. Everything is very case-by-case, so I don't want to, you know, I can't suggest an investment in a hotel, but… but, I like those markets, and I also think there's a real benefit to a… to a drive market. It gives you a little bit of comfort, and, like, Lake Placid is… I'm in Westchester County, and it's…
Russ Flicker: It's a four and a half hour drive and hard to fly, so that's a different animal. But if you can drive in a couple of hours, and you can do something interesting, not a commodity product, I would be a little bit more worried about a commodity product there, but something a little more interesting, I think could do well.
Tony Unkel: Great, thank you.
Tony Unkel: Keep it open for another minute or so. If anybody has any more questions, feel free to drop them in.
Russ Flicker: If you think of other questions, I'm sure you can send them to Tony, and I'd be happy to answer them later, by FYI.
Tony Unkel: Absolutely, and Russ, would you like to put our contact up on the screen? Completely that should be your next slide.
Tony Unkel: Yeah, for sure.
Russ Flicker: do that.
Russ Flicker: Thank you, Tony.
Tony Unkel: Of course
Tony Unkel: Alright, doesn't look like anybody's gonna hop in with a question, so we want to thank everybody for joining us today. Our contact information is on the screen, so if you do want to reach out to either of us about anything you learned today, please feel free to do so, and we appreciate everybody taking time out of their day to join today.
Russ Flicker: Thank you so much, everyone. Appreciate it for coming. Thanks, Tony.
Tony Unkel: Take care, everybody.