RG 323 – Investing in Hotels: Benefits, Challenges, and Best Practices with Jonathan Twombly

What is it like investing in a hotel? How is it different from investing in multifamily assets? Let’s talk about it.

Jonathan Twombly was an accomplished Wall Street lawyer before he entered the world of real estate. In 2011, he became a full-time multifamily real estate investor and eventually created Two Bridges Asset Management, an LLC helping aspiring investors achieve capital growth through multifamily investment opportunities.

Jonathan was on our show hundreds of episodes ago, and a lot has happened in his business since then. In this week’s episode, we talk about Jonathan’s journey in the past eight years, including his challenges with investing in a different state, looking for new markets, buying a hotel, and so much more.

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Our conversation focuses on what it’s like investing in a hotel, which Jonathan can give us a lot of insight into. We talk about gauging the potential value of a hotel (in terms of location and appeal), the underwriting process (and how it differs from multifamily investments), and the pros and cons of having a brand, among many other topics.

Key Takeaways

• Coming out of partnerships can help you realize what direction you want to go.

• Underwriting is more conservative for hotels than multifamily assets.

• In hotel underwriting, the two main variables are the cost per room and the expected average occupancy rate throughout the year.

• When it comes to boutique hotels, finding the right locations and catering to the existing markets is crucial.

LINKS
www.linkedin.com/in/jonathandtwombly/
https://twobridgesmgmt.com/

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Reed Goossens (00:00):

Good day Good day guys. Now, before we dive into today’s show, I want you to let you know that some of you maybe aware that over the past eight years, I have built a substantial multi-family real estate portfolio here in the US worth over half a billion dollars. And in that time, my passive investors have received fantastic double-digit returns. And now you too can invest directly into my deals for as little as $50,000. So if you’re an interested investor, head over to reedgoossens.com to find out more that’s reedgoossens.com. Now back into the show,

Jonathan Twombly (00:40):

I think there’s a great opportunity in this space, because if you look at sort of who owns these hotels, it’s a little bit like multi-family was a few years ago where you had a lot of mom and pop owners, right? And they, they were, they were semi-professionalized at best. And there, you know, it was before, you know, the, the big institutions getting into buying from mom and pops, right? If you look at a lot of these hotels, well, who owns them, they’re baby boomers. Sometimes even silent generation folks are older than the boomers. Uh, their, their kids don’t wanna take over the hotels, right? They, and there’s a very limited exit for them because you basically have to sell to somebody who wants to then take on the job of running a hotel. If it’s a bed and breakfast, I think most people can probably handle like a small bed and breakfast if, if they’ve never done it before, but getting into like a 30, 40, 50 room hotel, that’s like, if you don’t have some expertise, you’re gonna be, this is difficult, right? And plus you’ve gotta come up with the capital.

Speaker 3 (01:49):

Welcome to investing in the US, a podcast for real estate investors, business owners, and aspiring entrepreneurs looking to break into the US market, join Reed, as he interviews go getters risk takers and the best in the business about their journey towards financial freedom and the sheer joy of creating something from nothing

Reed Goossens (02:10):

Good day good day a ladies and gentlemen, and welcome to another cracking edition of investing in the US podcast from Los Angeles. I’m your host reed goossens good as always ever with us on the show. Now I’m glad that you’ve all tuned into it to learn from my incredible guests and each and every one of them are the cream of the crop here in the United States. When it comes to real estate, investing, business, investing and entrepreneurship, each show, I try and tease out their incredible stories of how they have successfully created their businesses here in the us, how they’ve created financial freedom, massive amounts of cash-flow, and ultimately created extraordinary lives for themselves and their families life by design. As I like to say, hopefully these guests will inspire all of my cracking listeners, which are you guys to get off the couch and go and take massive amounts of action.

Reed Goossens (02:56):

If these guys can do it. So can, can you now, as you know, I’m all about sharing the knowledge with my loyal listeners, which is you guys. And there’s absolutely no BS on this show, just straight into the nuts and bots. Now, if you do like this show, the easiest way to give back is to give us a review on iTunes. And you can follow me on Facebook and Twitter by searching at Reed Goossens. You can find the show every your podcast on iTunes, SoundCloud, Stitcher, and Google play, but you can also find these episodes up on my YouTube channel. So head over to reedgoossens.com, click on the video link, and it’ll take you to the video recordings of these podcasts, but you can see my ugly mug, but the beautiful faces of my guests each and every week. All right, enough outta me, let’s get cracking in into days.

Reed Goossens (03:43):

Show of the pleasure of speaking with a very, very good friend of mine. Jonathan Twombly. Jonathan is a former wall street lawyer who became a multi-family syndicated and investor in 2011. He built a solid, uh, multi-family portfolio in the Carolinas, and he’s since has sold that. And he’s also now cog and JV on multi-family deals in excess of over $200,000. He recently purchased his first hotel property with a view to build, you know, what’s called a boutique brand, and we’re gonna talk a lot about more about this on today’s show. And his company is called two bridges, asset management, LLC, and he most passionate about being an entrepreneur, not working for anyone else and helping others realize that same potential, Jonathan, uh, welcome to the show, how you doing today, mate?

Jonathan Twombly (04:27):

I’m doing great. You, you missed, uh, three zeros on the amount of money that I’ve been the, the deals I’ve been involved with, but that’s okay.

Reed Goossens (04:33):

What did I say?

Jonathan Twombly (04:34):

You said 200,002.

Reed Goossens (04:36):

I, I meant to say 200 million. If you’re 200,000, I’ve known you for eight years. If it’s $200,000 and eight

Jonathan Twombly (04:46):

Years,

Reed Goossens (04:46):

I think someone’s doing something wrong, right? but least the beauty about the beauty about podcasting is we can do whatever the hell we want and people that’s listen. People get to listen to it, but mate, how you been, what’s been happening?

Jonathan Twombly (04:56):

Um, I’ve been, I’ve been really well. Uh, well, let’s see. I mean, as you know, we’re working together on some, on some deals, which is super fun. I mean, it’s great after all these years of knowing each other to actually work together on stuff. So, uh, really enjoying that a lot, uh, and learning a lot from the way you, you know, your process too, which is fantastic. Um, I let’s see the, the big interesting news for me I guess, is that I recently bought my first hotel. Right. And, uh, that’s a departure from what I had been doing before. Uh, but something that, uh, is a little bit of a passion project for me, but I also can’t help with my entrepreneurial brain thinking about how this could, you know, potentially grow into something big. So that’s what, you know, that’s, what’s keeping me busy other than helping, uh, helping you out these days.

Reed Goossens (05:42):

Well, I wanna get into that, but before we do, I wanna rewind the clock and just reintroduce yourself to the people of, uh, investing nation here because you were on my show way back in episode, I think it was 20 or 21 mm-hmm , we’re in about 360 episodes, six and a half, seven years later. So back then we were talking about how you’re studying a fund and I’d highly recommend everyone go back and listen to that, but just, let’s give us a quick, uh, introduction for yourself, your background, how you got into the space, just for those people who don’t know who you are. And that’s, that’s pretty difficult these days with your, uh, social media presence.

Jonathan Twombly (06:20):

I think there are probably a lot of people who still don’t know who I am, but nevertheless, uh, the, uh, yeah, so as you mentioned in intro, I started out as a wall street lawyer. Uh, I did that for about 12 years altogether. The last part of my career was actually in real estate related law. I was, uh, I was on the litigation side. You know, most people who make the jump from law are on the transactional side. I, I was actually a litigator, but what I was doing was representing, uh, ironically enough hotel owners who were fighting with hotel chains. So, uh, you know, we’d represent the, the owners of like, you know, major flagged hotels in, you know, around the country when they were in disputes with, with, you know, the, the management companies or the franchise companies. So, um, I did that for the last few years of my career, but really got burned out with law.

Jonathan Twombly (07:09):

I got downsized in the great recession or sort of immediately after it. And, and by that point I was done. I mean, I remember actually thinking like, Hey, how am I supposed to go get another job when I don’t want the job? Like, how am I supposed to interview for jobs I don’t want? And I realized at that point, I really needed to make a change. I started doing a lot of networking in real estate cause I’d been, become interested in, in real estate and, you know, wanting to become a principal rather than, you know, be a hired gun. Um, as I was networking, I was kind of getting some mixed messages from people. One of which was, uh, look buddy at your age, like you’re not gonna get a job in real estate. Nobody’s gonna wanna hire you. You have a great resume, but you’re, you’re too old.

Jonathan Twombly (07:53):

You know, we’re talking about institutional, you know, real estate companies. Uh, the only way you’re gonna break into this business is if somebody takes a liking to you and wants to be your partner, and that’s exactly what happened. I met somebody who was putting together. What I later learned was a syndication business. I had no idea what syndication was, but, you know, we met, she was like, Hey, I think you have the ability to raise money. Um, and why don’t we partner up? And so I sort of jumped in, you know, I, we partnered up, um, I, I did successfully raise money, but we had trouble closing deals. Um, back in those days it was a, you know, lender issue. Really. We had, we had deals under contract. We had the equity lined up and, and the banks were the, the, the problem, you know, we found banks didn’t wanna lend on this stuff. Right. So, uh, that lasted a couple years. Uh, then we broke up after a couple of years of kind of banging our heads against the wall, went out on my own in 2013, founded two bridges. And that was when I started get getting subtraction and started building that portfolio in, in the Carolinas.

Reed Goossens (08:57):

And that’s interesting that you’ve come through, uh, a breakup and, and sort of, I didn’t realize you came through a breakup early on mm-hmm um, what, how was that? Like, because obviously you would start something coming outta law, you know, all gun ho and yeah. Found someone let’s, let’s get, let’s get into bed. How, how was that, uh, coming out of that partnership?

Jonathan Twombly (09:15):

Uh, well coming out of it. Yeah. I mean, so it I’ve seen other people do this and now, you know, when I’m talking with coaching students or talking with people in general, like, I always say, you really need to partner in this business, but you shouldn’t partner too fast. Right. Do some deals with somebody first, you know, there’s no reason to, to jump into a partnership, but what, what you see a lot. And what I did was like, you know, two people you meet, you’re interested in the same thing. Like you say, well, let’s become partners and what you think that means is, okay, now we have to form a partnership. And I think pro probably part of the reason people do that is because it feels like you’re doing something productive, right. Even though like getting deals is really hard and getting money is really hard when you’re starting out, but forming a partnership.

Jonathan Twombly (09:58):

Well, wow. Like we, we accomplished something. So, you know, we sort of jumped into it and then after we jumped into it and we had like formed an entity and gotten our operating agreement together and we’re looking for deals, then we started noticing like the differences of opinion and like the differences of approach. And, you know, she’s having conversations with, uh, you know, certain people who are telling her, this is how it’s done. And then, and I kind of viewed her as the expert and cuz she had been in the business a bit and then I was going out talking to investors, kind of using what she was telling me and people were looking at me like that’s not the way this works. Right. So, um, we just wound up having differences of opinion and we never really had any kind of like bite or, or bad blood.

Jonathan Twombly (10:48):

But there came a point where we, after we lost the few deals that we got under contract that we kind of both came to the realization that the same moment that like, maybe this is a good time to kind of just break up. And, and so we, we just, you know, fortunately we didn’t have any assets that we had to like fight over. Nobody had to buy each other out. Like we kind of didn’t have anything. We just had a couple of years of time kind of burned, uh, into this. And so it was a pretty easy, you know, split,

Reed Goossens (11:15):

Um, well, but also he help you set up yourself for success in what you wanted in life. Right. Because I think clarity coming outta partnerships helps you, sorry, coming outta partnerships help you helps you define clarity in where you want to go. Right. And I’ve seen you grow and that’s probably around the time we met. Um, yeah. In, as you came outta that partnership. I remember having a beer with you in Brooklyn and, and talking about the, the mastermind we’ve started, but, but did that help you gain clarity to what you want to do

Jonathan Twombly (11:43):

It? Well, it did. And the other thing that it actually did was I, I got a lot of learning and experience out of that partnership, even though we didn’t successfully conclude any deals. I mean, we went right up to closing basically on a couple of deals, went through due diligence, went through the whole lending due diligence process, went through, you know, interviewing management companies. I mean really the whole setting up syndication. We, we did everything except close those deals. And what happened was, um, you know, I, I, I took all the losses myself. I funded all this myself. I didn’t, wow. I didn’t use investor money. So my, my investors who were all set up and ready to go, they, they didn’t suffer anything except kind of having this money set aside for a while that then they didn’t use and they went and used it for something else.

Jonathan Twombly (12:28):

Right. So that actually gave me a lot of credibility with my investors who then when I went out on my, it was actually one of my investors who then helped me form my second partnership when I sat down with him and I was like, gosh, I don’t know what I’m gonna do. Now. I might have to go back into law. And he was like, don’t do that. Why don’t, why don’t we become partners instead? And I’ll fund I’ll back you in this, it, it had to do, because I essentially learned on my own dime, right? Like I spent two years, I got the education instead of, you know, going to like a real estate program and paying some professors to teach it to me. I learned it on my own, uh, on my own at my own expense, lost my own money. Didn’t lose investor money. And I, I think that actually, even though it was really painful at the time, it, it, it came across making me look very credible to my investors. And also they recognized the experience that I had gained as well. So by the time then they, I did get deals under contract. They were ready to go and invest in those deals with me because they, they saw what came before, you know? Right.

Reed Goossens (13:33):

Yeah. You you’d laid the path for success, um, in the future, based on some pain that you had to go through, which is a really interesting point and, and something that I think a lot of entrepreneurs need to go through to, to earn your stripes. Right. Because that’s how you prove to your investors, that you, you are worth your salt. So, um, and then, so from there you then went onto buy deals in the Carolina is actually in the market where we are partnering on a deal right now. And, and I have a lot of thanks to you for introducing me some incredible partners down there, but, but what was the, the landscape like, cause you mentioned lending back in the day, people weren’t lending on multifamily was that, is that a hang up of the 2008? Was that just like people didn’t understand syndication and like, what the hell are you doing by?

Jonathan Twombly (14:12):

No, it wasn’t, it, it was, it was a hangover. It was probably a combination of two things. So one was that it was absolutely a hangover of 2008. The lenders were still skittish. Um, the, those deals that fell through this is 20 11, 20 12 timeframe. Mm-hmm got it. Right. Um, the other thing I think was the market that we were in, which was Louisiana, which lenders were also like, you know, they, they were, they were, if they were gonna lend on stuff, they were gonna lend on like New York, LA, Chicago, Miami, that what we used to call the big six. Right. Mm-hmm uh, and Louisiana was just like, uh, too far, you know, a bridge too far for them. Now, maybe if we’d gone with a local lender that would’ve been different, but we were trying to get agency debt. We actually did get agency debt, even though it was our first deal, which was kind of amazing until they backed out on us.

Jonathan Twombly (14:58):

Right. Until they, until they then came up with some like crazy pretext for backing out of the deal. Right. Um, somebody got skittish along the way about, about these properties that we were in contract for. So that, that was what, but, you know, now is, it’s hard to imagine that happening now, or at least the, the last few years when lenders, if you just, you know, if the word began with an a and ended with a Y, right. They were like, they were like, uh, yeah, we’ll give you money. Yeah. How much, how much, how much do you need? 20% yeah. So, uh, it was a very different environment. Right. But then, um, but then I switched, you know, I, that the only reason I was in that market was because she already had assets there. She knew that market. I was never particularly interested in that market, but, you know, I figured we’ve already got some headway made there, but I was interested in South Carolina because I, as you know, I like data.

Jonathan Twombly (15:54):

I’m kind of geeky. I can like sit there. I can like, literally like read census data for fun. Right. I mean, like, like I think it’s fun. Um, and I was just looking, you know, I had a couple of criteria for when I started out. Cause I didn’t know. I didn’t even know what I didn’t know then, but I, I could, I could sort of Intuit a couple things. One was that population growth was better than not population growth. Right. And the more population growth there was the better. So now that if you, if you said, well, what’s growing, well, there were a lot of places that were growing, right. So I said, well, okay, then it should be more than the national average. So that narrowed down the number of markets. And then I was like, you know, going to Louisiana was a big pain in the neck from New York city.

Jonathan Twombly (16:35):

So it’s gotta be on the east coast. Right. So what’s growing high, faster than the national average and is on the east coast. Uh, well, it, it was the Carolinas, um, Florida also fit that metric. But at the, I probably people will find this hard to believe now, too, but Florida a decade ago had this reputation of being incredibly boomy and busty. Right. Mm-hmm so you could get caught with your pants down because they would overbuild in Florida and coming out of the great recession when overbuilding was this huge problem. I was like, I don’t think I wanna be, be touching Florida because who knows what’s gonna happen. That’s crazy. Mm-hmm so, um, but the Carolinas were like really under the radar, they weren’t boomy and busty. They didn’t get overbuilt, but they had this really nice population growth going on. And I thought, oh, that sounds kind of like, that’s a little Goldy Oxy for me, not too hot, not too cold, it’s just right.

Jonathan Twombly (17:27):

You know? So that, that was what attracted me, um, to the Carolinas. And first I was looking at Charleston, but Charleston even then was, was quite expensive, had very compressed cap rates. Um, and, but then I sort of discovered Greenville in the upstate and I was like, wow, the population growth here is actually better than Charleston. Right. And this is a really growing area. And it’s really under the radar, like nobody was looking at, uh, at, at Greenville in those days. And like the out, the number of sort of out-of-state investor groups at, at that point, there were like five of us. Like we all knew, we, we all knew who we, the others were and they were all based in New York and Philadelphia. And, um, so it was a lot, it was pretty easy to get deals and, uh, you know, you’re buying deals at like, you know, eight, nine caps and, you know, and meanwhile, everybody was like flooding into Texas. Like Texas was great, cause it was sucking all that investor attention away from the Carolinas. Uh, so I was able to get in when it was still, you know, and under the radar place.

Reed Goossens (18:30):

Yeah. Well, and today we’re getting under the radar. What does under the radar even look like today? So, um, it, it, it’s really interesting, but, but now let’s pivot to your hotel. Like you, you you’re in, you you’ve just bought a hotel, maybe like Spain, why the hotel route, um, a lot of people in the multifamily space would think self-storage is the next or mobile home parks would be the next sort of natural step. But you jump to hotels, which if you look at the spectrum and I work for a big developer, hotels would be up there in the sort of more risky category in commercial. Um, you know, out of you’ve got malty, you’ve got self storage, you’ve got mobile home parks, you’ve got office, you’ve got retail and you’ve got hotels and, and, and we know coming outta the pandemic, you know, people couldn’t travel. Right. So who’s, who’s getting raped over the coals. So why the decision to go down the hotel route?

Jonathan Twombly (19:15):

Yeah. So, I mean, this is, uh, I can’t say that this was like a planned out decision, right? Mm-hmm it was not, it was not like, okay, I’m looking at the landscape and multi famous crowded, so where should I go next? It didn’t, it didn’t come about that way. The way it came about was, uh, so my, my family, we own a, a second house in upstate New York and a region called the finger lakes, which is, it’s a really beautiful area. Cornell university is, is in, in the finger lakes. Um, but there are 10 lakes, the long and skinny, that’s why they call ’em finger lakes. And, um, it’s a, it’s a wine region. It’s becoming increasing like a beer region, spirits, farm to table food ecotourism. There’s beautiful waterfalls. And there’s, you know, the lake are gorgeous and they’re full of beaches and stuff.

Jonathan Twombly (20:01):

So we’ve been going there for years. And we finally bought a house a couple of years ago and on the way to the, to our house, we would pass this hotel. Right. And we, and the hotel was in this spectacular location, overlooking Seneca lake, which is one of the biggest lakes there. I mean, just commanding view of this lake. Right. And, and it’s was kind of this old kind of tired hotel. And every, every time we passed it, we would say, wow, it it’s such a shame that there is this old tired hotel in this amazing location. Uh, so fast forward a couple of years, I was on Krei looking for, uh, maybe small. I was just, maybe I’ll try to pick up some small multis on my own in upstate New York. You know, just because again, I have that like wanna look under the radar, kind of bent to me the value investor bent to me.

Jonathan Twombly (20:56):

Like I want to go where other people are not looking. And I was thinking like, you know, there’s some good markets up here. They don’t have the growth that you have in the south, but there’s some very solidly, you know, economically solid places. The cap rates are better, you know, maybe I, you know, could I fill a 10 unit property? Yeah, probably I could, I wouldn’t really worry too much about being able to fill 10 units. So I was looking at stuff like that just to see what was around. And I noticed that this hotel was for sale. And so I was like, okay, that’s interesting. And I noticed that it had been on, you know, it’d been on the market for like a year and they kept on cutting the price and cutting the price and cutting the price. So I just started playing around with it.

Jonathan Twombly (21:36):

And as I played around with it, I realized that, well, Hey, I don’t really know how to underwrite this. I don’t know anything about hotels. Maybe I should find someone who does. So I talked with one of my business partners just happened to ask him, you know, Hey, do you happen to know anybody who’s in the hotel business? So he could give me some advice. And he said, look, my wife’s cousin actually owns a hotel management company. He’s a second generation hotel guy talked with him. So we started talking, showed him the asset at, had him underwrite it. And yeah, he was like, I think there’s something here. So we just kept on sort of digging into it, the idea being that we were going to rehab it, we’re gonna transform it into something, uh, you know, other than what it is, uh, and, you know, positioned it into market differently and stuff like that.

Jonathan Twombly (22:22):

And, and as sort of, as we got further down this, this road, the project became more and more appealing. So I decided to go to a couple of investors that, you know, very old friends of mine, who’ve invested in past deals who have done. I did very well for in past deals. Uh, and just said to them, what do you think about this? You know, I wanted, and I said, I didn’t wanna deal with a bank. I was like, I, I wanna do this all cash, including, you know, purchase price and rehab. And you know, what do you think? And they said, they looked at the underwriting and they said, okay, you know, based on your track record and our history together and what you’re presenting we’ll, we’ll do it. So I had everything lined up and figured, okay, let, let’s go for it. So, uh, I mean, you know, interrupt me anytime you want. No, no,

Reed Goossens (23:05):

This is, this is great. Like, I think the one thing I wanna, um, it’s interesting as you, as we all grow as an entrepreneur, right. I, I, I, I have that, uh, I don’t know if it’s fantasy or, uh, the lust when you you’re, you’re in a place and it’s a holiday where like, oh, how could it be to, to own that over there? You know, I wanna own that building, driving. I always remember the flat iron building in New York city, just being completely in awe, how it’s just such beautiful, a architecture. You’re like, oh, I’d never own that. But you, you, you, you always dream. Yeah. Yeah. But it’s, it’s awesome that you drove past it. And it’s, it’s a bit of, bit of ment that’s come all all around to, to say like, now you’ve got this thing under contract, so let’s dive into a little bit more of the, the numbers here. So what, from a, from a high level, you mentioned growth before in, in markets. What do you look for in hotels to make sure that you are, you know, are buying something because hotels are, you know, inherently for, for, for vacations and when people have excess money and all that sort of stuff. So how do you get comfortable knowing a region’s gonna sustain its sort of appeal?

Jonathan Twombly (24:04):

Yeah, it’s a good question. And it’s definitely sort of a thought process I went through in respect to this hotel. Right. So, uh, you know, so one thing I knew is I’m going in a pretty low basis. Right. And if we have time, we can talk about sort of where I want to go with this and, and some thoughts around the, the hotel business, but we’re going into a low basis. So that, that, you know, took care of some of the risk right there, but there are some other appealing things about this particular hotel, right? So, and this market one was at this region in general, the tourism industry has been growing steadily over time. Right. So the finger lakes have become more and more of a destination for people all over really like the Eastern half of the United States and into Canada. I mean, you know, it’s, this is two hours from Montreal, sorry, two hours from Toronto. Right. So you have, you have a lot of people coming from Canada to the region. Uh, it, the finger lakes is probably the premier wine region on the east coast. Right. It’s New York is now actually the third biggest, uh, or maybe the second biggest wine producing state in the country. So

Reed Goossens (25:08):

It’d be like a Sonoma valley type

Jonathan Twombly (25:09):

Of it is. Yeah. So it is, it is definitely trending in that direction. Yep. In terms of like a Sonoma, uh, it’s adding, like I said, there’s now a big craft beer industry growing there, a big, you know, uh, spirits industry growing there, cheese, uh, you know, farming, farm to table, plus the nature, which draws in a lot of people. The, the second thing. So regionally you have that, right. But with respect to this specific hotel, there’s also a state park called Watkins Glen state park, which is, uh, pretty much every year ranked one of the top five state parks in the country. Hmm. And it draws about a million people a year to the state park, which is surprising because it’s a very small park. But the thing is, uh, if you have ever seen like the Lord of the rings movies and you see the, the R Del where the elves live, mm-hmm, , that’s basically what it looks like.

Jonathan Twombly (26:04):

It’s a spectacular, it’s a spectacular canyon that you can hike through and hike behind waterfalls. And it’s got like 11 waterfalls in this canyon. And it’s just, it’s just amazing. So that draws a lot of people. There’s also the history of Watkins gland. It’s a big auto racing area. And they, they literally used to have formula one grand pre through the streets of the town in the fifties, and now they have NASCAR. Uh, but they, there was Watkins Glen international, which back in the days when formula one was popular in the us, that Watkins, Glen was one of the, basically one of the main formula one ventures. And interestingly enough, this hotel was where it was the kind of preferred place for the racers to stay. So yet Paul Newman always stayed at this hotel when he was racing, Mario Andre. He always stayed at this hotel.

Jonathan Twombly (26:55):

And so it’s got this amazing history too, which we, we don’t wanna try to play on a bit as well, but, but I knew just from the, like, what’s the draw of this. We knew we had the draw, we knew people were coming and we knew that the region is growing and, and people are gonna continue to come. And then the third thing was that, you know, other than being shut down completely because when the, the shutdown order is in COVID happened, once things opened up the place boomed because people went like they couldn’t fly anywhere and they had to take driving vacations. And, and the region just boomed the last couple of years, as soon as, uh, things opened up, which meant that there’s, there are millions of people who had never been there before. Who’ve now been there. And, and chances are, they’re gonna wanna come back again, cuz now that now they know the region, right?

Jonathan Twombly (27:42):

So it was a big boost to the region in terms of tourism. And if you think about where it’s positioned, you’re basically within a four or five hour drive of New York city, Philadelphia, Toronto, uh, Pittsburgh, Ohio, like Boston, maybe six hours from Boston, but the whole Northeast metroplex you’re with within a quick drive of this place. So for, for a flying sort of for a driving vacation, uh, you’ve got, you know, 30, 40 million people within driving distance of this place and, and not, and the only, and multiple attractions. So it’s, you know, not just the waterfalls, not just the racing, not just the wine, not just the lakes, but all of it together. So that was, that was the thinking behind it.

Reed Goossens (28:28):

For those of you who are interested in staying up to date with all the latest happenings in my business, or to learn more about passively investing directly into my multifamily value, add deals, then head over to reedgoossens.com and sign up for my monthly newsletter by signing up, you’ll automatically be notified about my new up and coming investment opportunities. You’ll be able to stay up to date with all the latest real estate news here in the United States and much, much more. So head over to reedgoossens.com and sign up date. Now back into the show.

Reed Goossens (29:04):

I think that to your point of coming outta COVID, again, all the kismet nature of this, this, uh, investment it’s, COVID forced people to be more into the driving. So probably people wanted to escape for weekends and didn’t, couldn’t get on planes to go internationally. Um, but from an underwriting point of view, how do you underwrite it in differences compared to multifamily? You know, I know just my little bit of knowledge, uh, ADR average daily rate, uh, for those people who don’t know what that means, maybe explain like a little bit of the ADRs and the occupancies and, and, and how you’re looking to con you know, make sure you’re saying you’re buying at a good basis, but how you then, then from a, from a, a, you know, stabilization point of view, what are you looking at to really make sure you are remaining conservative and you can hit your numbers.

Jonathan Twombly (29:48):

So the under, so the first major difference in the underwriting that jumped out at me when I started, you know, working on it with my, my manager that I’ve hired is that, you know, like in multifamily, you’re looking for, you know, you’re shooting for like a 50% expense ratio. Mm-hmm right. Generally speaking. So 45 to 55, maybe if you’ve got a class ax class, a asset, you can be below 40, right. Um, cuz you have less, you know, ongoing maintenance and stuff. Uh, but also in, in multifamily you, your expense costs are mostly fixed, right? You can’t, maybe you can like get away with one less staff member or, you know, something to, to kind of shave the expenses, but there’s not, you know, you can Institute rubs maybe to get your, you know, your utilities cost down or whatever, but it’s basically fixed, right.

Jonathan Twombly (30:39):

I mean the only, the only, the only variable that’s really gonna change with occupancy is maybe utilities cause people are using more or less utilities. Hospitality is very different. Your costs are basically a function of your occupancy, right? So the, the more occupancy you have, the more cost you have and generally what you’re shooting for is a, about a 65% expense ratio. Wow. Okay. And, and, but it’s all it’s, but it’s, it’s directly connected to your occupancy. Right. So because you’re, let’s say your, your front desk staff, your, your, especially your housekeeping are, are directly related. The they’re paid by the hour and they’re, they’re working more or less hours depending on whether you more, more or less guess. Right. So that cost expands or contracts with your occupancy. Right. Same thing as like, you know, a major expense for hotels is credit card charges.

Jonathan Twombly (31:32):

Mm-hmm right. That’s directly related to, uh, to how much revenue you’re bringing in. Right. Um, so you don’t have as much, you know, fixed costs, your fixed costs are gonna be your property taxes. You know, if you have a mortgage, your mortgage, right. Um, I mean, even utilities to some extent are gonna be related to how many people are in the room, turning on the lights and turning on the heat. Right. So, um, so it’s a different way of looking at it. And you know, when I first thought like, oh, 65%, that’s too high, but that’s just basically, that’s the industry standard. That’s what you underwrite. Maybe you’ll be able to shave a couple points off it here or there, or maybe if you can really get premium room rates, you can expand it a bit more, but you you’re kind of like shooting in that, in that range.

Jonathan Twombly (32:16):

Right. Yep. So that was one big, um, you know, one big, uh, difference. And the other is that, you know, sort of looking at like a hotel, like this is, is very seasonal, right. So you’ve got, you know, summertime you’re packed out and then you’ve got, what’s called head and shoulders. Right. So the head is the summer and then spring and fall by the shoulders. And then it sort of drops off in the wintertime mm-hmm . And so sort of writing conservatively, you’re trying to figure out, well, well, what is my occupancy gonna be for like the whole year? Right. And, and we shot pretty low on that number. We thought, okay, we’re probably all things considered, you know, being near a hundred percent in the summer and being probably, you know, 15 to 30% in the wintertime. Wow. Um, you know, we’re probably gonna be around 56, 50 7% on an annual basis.

Jonathan Twombly (33:10):

Right. Mm-hmm so you, you underwrite that and then you figure out what your, what you think you can get right. At that’s your rate. Right. And then you multiply by your occupancy, you get your average daily rate. So, uh, that, you know, that’s how, that’s how you underwrite it. Right. You basically use those two variables, like what are we gonna charge for the room? And then what do we think? You know, the average that we’re gonna get for the whole year is, and then what’s our occupancy. So that, that gives you your top line revenue. Yep. Um, but, but then there are other things that you can do, you know, which for instance, we are not being done at the hotel. So I could take a break now, too, if you want. Yeah. But there’s certain things that we, that were some unquote value ads that in addition to the rehab that we’re gonna do, there are value ads that we’re able to put in place. Uh, you know, that, that allow us to capture more revenue. But I don’t, I dunno if

Reed Goossens (33:59):

Now, so, so, and for those people listening, um, again, I used to work for a hotel developer actually and they call ’em a PIP project. Um, uh, what is it, a project? What was PIP stand for again, it was like, um, it’s essentially value. Add you come in and you, um, performance enhancing program or something like that. It was, that was what it stood for. Yeah.

Jonathan Twombly (34:20):

Those are what the, yeah. Those are when the, when the flags come and tell you, you have to go and you have to, you know, build

Reed Goossens (34:25):

A certain way.

Jonathan Twombly (34:26):

You have to do your whole, you know, hotel over again with our new brand standards and you gotta buy new mattresses and new linens and new desks and new beds and new everything. Yeah. But,

Reed Goossens (34:35):

But from a design point of view, it’s like, they’ve got a whole thick book. If you went to hire or you went to, you know, Hilton, that would be like, depending on the flag, you would have to, you know, have certain look in your lobbies and certain looks in your, in, in your room. So for you, your boutique, right. So you can really do whatever you want. Right. Is there, is there a pros and cons for being with the flag and not a flag?

Jonathan Twombly (34:57):

Well, yeah. So the biggest the, and this, yeah, It’s funny in a way I’ve come full circle. Cause I was a hotel litigator. Right. So back in the day, so I was familiar. You were familiar with this from the building side, I was familiar with like these brand standards and stuff from the litigation side where, you know, the, the brands were like forcing owners to spend all this money that they didn’t wanna spend and there was fighting about it. But the advantage to having a flag right. Is, uh, supposedly the reservation system and the brand, like you’re, you’re you’re, you don’t have to do any of the work of brand building. You’re just buying into a system that already exists. Right. That’s that’s the argument. Right. And for a lot of, of, if you’re building hotels, it’s almost impossible to build a hotel without a flag because the lenders really only land on flagged hotels.

Jonathan Twombly (35:47):

Right. Because it gives them risk. Right? Yeah. They see that as being less risky than building it an independent hotel on your, you know, on your own. So that’s, those are the two big advantages. The disadvantages are like, what you said, you’re you now have to build the hotel the way they want it. Right. And it kinda locks you in because if you decide, you wanna go from like Marriott to Hyatt, right. You’ve now gotta go and basically reed do everything in your hotel to bring it to the Hyatt standard instead. And so the Marriott standard, right. Or when, when Marriott decides that they’re changing all of their corporate logos and branding, well, now you’ve gotta spend all this money to, to redo everything in your hotel to, to accommodate them. Um, as an independent, you know, we were just, before this call, I was on, uh, I had two calls this morning, one with our branding people and one with our design team.

Jonathan Twombly (36:39):

And, you know, a couple weeks ago at the hotel I met with the design team and the, you know, the question I asked them was, well, how quickly can you turn this around? And they said, well, because you’re an independent hotel. We can turn it around very quickly because we don’t have to then go to the brand and spend two months back and, and forth, back and forth with them, you know, after, and then the back and forth with you about getting so the process is much more streamlined because they don’t have, we don’t have to answer to the brand. So that’s, you know, we had just much more freedom to kind of make our own aesthetic choices, make our own choices about kind of the quality of, you know, betting live in, you know, amenities, whatever we wanna do. So, uh, there’s a big advantage in some ways to having a non-branded hotel because you have that freedom.

Reed Goossens (37:31):

Yeah. No. And, and I, and I would love to spend more time talking about this. We do actually have only a couple more minutes left in the show, but really where what’s the goal here of, of, of producing something bigger than you, you mentioned in, I mentioned in the introduction, something about a, a, a boutique line of, of hotels, is that the thought, given your entrepreneurial brain?

Jonathan Twombly (37:51):

Yeah. So this is definitely one thing that, you know, I’m trying to just do one step at a time. Let’s get this one done, you know, make it a success and then think about expanding. But, you know, since the possibilities there, you know, we are, when we’re picking names, we’re trying to think about, well, what’s brandable. What, what, what’s not limited to this location. What’s something we can, we can take to other locations. If we buy more hotels. The, the, I think there’s a great opportunity in this space, because if you look at sort of who owns these hotels, it’s a little bit like multifamily was a few years ago where you had a lot of mom and pop owners. Right. And they, they were, they were semi professionalized at best. And there, you know, it was before, you know, the, the big institutions getting into buying from mom and pops.

Jonathan Twombly (38:35):

Right? If you look at a lot of these hotels, well, who owns them, they’re baby boomers. Sometimes even silent generation folks are older than the boomers. Uh, their, their kids don’t wanna take over the hotels. Right. They, and there’s a very limited exit for them because you basically have to sell to somebody who wants to then take on the job of running a hotel. If it’s a bed and breakfast, I think most people can probably handle like a small bed and breakfast if, if they’ve never done it before, mm-hmm , but getting into like a 30, 40, 50 room hotel, that’s like, if you don’t have some expertise, you’re gonna be, this is difficult. Right. And plus you’ve gotta come up with the capital. I think that there’s a lot of opportunity for, to buy these hotels at reasonable valuations. They almost all need some work because the nature of, of this business with these mom and pops is they just don’t have a lot of additional capital to reinvest in redoing the hotels.

Jonathan Twombly (39:29):

Right. So they’re you see them? They’re sort of, maybe they’ve been redone once 20, 30 years ago, they really need to refresh. And, and I think that the opportunity to come in, uh, you know, find more attractive assets and attractive locations. Once we’ve gone through all this work of like building our own design, you know, sort of schematics what our brand looks like, then it becomes very easy to go into the next one and do it the same way, you know, have we have the management lined up, we can just kind of create a system where we can buy these assets at, at decent valuations and, and then, you know, professionalize the operation, redesign it, rehab it, make it into something new and nice. And, and just move on to the next one.

Reed Goossens (40:11):

Yeah. I think the key there is with particular tells us, finding those locations, right? If you start looking at certain, I know I travel a lot. I look at certain areas of, you know, in Italy or parts of Mexico or parts of Australia, which have very, very beautiful hotels. And you would never see another brand like that until you get to another really exotic location, like in Greece or something like that. So is that kind of the, the thought that potentially will, will, will be around?

Jonathan Twombly (40:37):

Yeah. I mean, what I’m thinking about is if we can find more things like, like, so we’re going for, this is a 1950s hotel, so we’re going for kind of like a retro mid-century modern madman kind of feel like, you know, so wanting to be sort of cool, but also recognizing the fact that this is not Brooklyn, right? This is upstate New York. So kind of just trying to figure out how to kind of get that, that mix. Right. But there are lots of places like all throughout the Northeast, if we just wanna start there where you’ve got like Lakeside hotels in, in very, you know, the Adirondack in New York would be like another logical place to go, or the, the thousand islands in New York, another sort of very similar kind of market, you know, it’s very, very, you know, seasonal. There is some, some business the rest of the year, but mostly it’s that kind of summer, spring and fall business.

Jonathan Twombly (41:25):

And you have very similar assets there. You have very, you know, you can find places with the same kind of beautiful views or, you know, whether they’re mountain views or, you know, water views or whatever. I think this is replicable in other places around the Northeast. So you could build a brand around that sort of similar similarly situated, you know, hotels that, you know, in beautiful spots, you know, where your competition, one thing I didn’t mention too, is sort of the positioning of this hotel, cuz in this, in this market, there’s one sort of quote unquote luxury hotel, which is kind of corporatey. Um, and then there’s a lot of these kind of old, old mom and pop hotels. So there’s like a top and there’s a bottom, there’s nothing in the middle mm-hmm, , we’re going, we’re going for the middle. And, and I think that there’re probably a lot of other markets that fit that same, that same, uh, you know, pattern where you’ve got, maybe you’ve got a couple of like your typical limited service, you know, motel, you know, hotel ti you know, your Hampton ends and whatnot. And then you’ve got a bunch of kind of these tired motels from the fifties and maybe some like really high end, you know, B and B are little tiny cute in that’s, you know, 500 a night, but there’s really nothing in the middle. Right. That’s, that’s cool and unique. And I think that we can potentially fit that spot.

Reed Goossens (42:43):

Yeah, no, and, and I completely agree as a traveler myself, when I go on holidays, I don’t wanna stay in that corporate, you know, chain, right. I want something unique in boutique hotels offer that in, in beautiful locations when I’m traveling in Austin or Greenville or, you know, New York, you stay and just, okay, what’s cheap. What’s gonna put someone to put my head. I think from a design perspective, from a boutique perspective, you’ve gotta be a little different, but I think you, you play into that with a good design team and also choosing the right location. So, um, but mate, with that being said, we do like to wrap up the show here, look, I want to thank you so much for jumping on the show. Uh, where can people reach you if they wanna continue the conversation they wanna be in your sphere? Where do they go?

Jonathan Twombly (43:22):

Yeah. So, uh, well, I, I say the place to go now is to, uh, apartmentinvestorsclub.com Uh, that is, uh, sort of in the process of bringing all of my brands under apartment investors, club.com. So if you go there, uh, you can get a free download and get on my list. Uh, that’s probably the easiest way to get in touch. You can also always reach me at, uh, two bridges, asset management. If you’re looking to invest, uh, in deals with me and you can reach me at, uh, Twombly at two bridges management, which is MGMT for management.com.

Reed Goossens (43:54):

Awesome. Awesome mate. Well, I wanna thank you so much for jumping on today’s show. I just wanna quickly reflect some of the things I took away from today’s show. I think the first one is just knowing you for so many years, seeing how awesome you’re, you’re coming into your own self and finding these, these little niches, uh, in and around the country and, and really reflecting of who you are as a person. I think that sort of, it, it speaks volumes in terms of seeing something on the side of a road that you thought was cute and affordable and then going down that path or, well not affordable, cute, and we could do something with it and then it’s like slowly chipping away at it and finding out there’s opportunity. And so having that resilience there I think is really, really important. Um, and I think also making understanding the hotel business in itself, it takes a lot of it’s a whole different asset class.

Reed Goossens (44:35):

It takes a different way, way of thinking, but by the sounds of you’ve got the right team around you, you’re going in the right direction from a boutique point of view, you’re trying to be different in a local market, but also being hyper local and understanding that local market cuz you and your family have a house up there. So all those elements come together to make this, uh, such an interesting conversation that I could continue talking to you for the next couple hours. But I do have to ju jump to another call, but did I leave anything out?

Jonathan Twombly (44:59):

No, I think that pretty much covers it. So I’m, I’m looking forward to coming back when this is all done and we can talk about it more.

Reed Goossens (45:05):

Yeah. I’d love to see some drone footage of the before and after. So well with that being said, mate, enjoy the rest of your week and we’ll catch up very, very soon. You too

Jonathan Twombly (45:12):

Have a great weekend.

Reed Goossens (45:13):

Well then you have another cracking episode jam pack with some incredible advice from Jonathan. If you do want to get into his world, go to apartmentinvestorclub.com. Is that correct? Jonathan or apartments?

Jonathan Twombly (45:23):

Apartmentinvestorsclub.com,

Reed Goossens (45:25):

Apartmentinvestorsclub.com. Check that out. His also on LinkedIn and on social media. So just Google his name easiest way to find out if you do like this show, the easiest way to give back is to give it a five star review on iTunes. I wanna thank you all again for taking some time outta your day to tune in, to continue to grow your financial IQ. We’re gonna do it all again next week. Remember be bold, be brave and go give life a crack.