Mastering The Game of Hotel Investment, Design & Branding - Jake Wurzak, CEO of DoveHill Capital Management

Josiah: Today we're going behind the scenes in the world of hospitality investment to hear from a hotel developer, owner, and operator with more than 1.5 billion in assets under management. 

Josiah: Jake Wurzak is the founder and CEO of DoveHill Capital Management and the president of Wurzak Hotel Group, the operating company it owns. In this episode, we'll look at why investing in hospitality is interesting, how to create value for investors, the role of brands, and the benefits of vertical integration. Here's Jake starting with his take on hospitality as an asset class. 

Jake: It's really hard. It's the hardest thing. It's the hardest real estate asset class. You have to love it. I love it. I love creating experiences for people. I love designing things. It gives you the opportunity to see how people are using the spaces and the rooms that you design and the experiences that you create. It's exciting. I think this blends my passion for experience and design and creativity with real estate because hotels are operating businesses. It's both a real estate investment and an operating business investment. That creates the ability to earn higher yields, for sure, but it's very hard. It was easy. Everyone would do it. 

Jake: I think in hospitality, the competitor pool is smaller. The competitor pool and the type of hotels that we invest in are even smaller Right off the bat. I think there's a unique advantage as opposed to just broad real estate. Oftentimes, when we do a hospitality deal, it's only because we have a deep hospitality track record. It's not something that you can really just dip into and you'll be able to get financing. You'll be able to raise a ton of equity. You have to have this track record that you've built and curated over time in order to be in the game. The barriers to entry, to just get in the game are harder. The asset class is certainly fewer than industrial or multifamily, but the yields are great. If you really know what you're doing, you could create great value in the real estate, but you can also create tremendous value in the operating business, which eventually falls to the bottom line for all of the investors. 

Jake: The other thing, which is not something to just joke about, it's a reality. People often invest money in the stock market or in venture funds and they don't really get a see and touch and feel where their money's going. In a hotel, you can do that. You can't do it in an apartment because most likely the investors in the multifamily building are not moving into the multifamily building. But we get investors all the time that stand our hotels and it's fun. Then they email me and tell me what they like and what they don't like. I go back and forth and it's an experience that is unique. I think that little touchy, feely moment of creating something special is also a reason to invest in hospitality. 

Jake: DoveHill Capital Management was formed in 2011 and we seek primarily full-service investments. We raise money from institutional partners and LPs in high-barrier-to-entry markets where we can really differentiate ourselves. We don't focus on commodity hotels. It's really that lifestyle, full service, or premium branded hotel in a great market. We have a lot of experience developing. We've developed probably six or seven hotels from the ground up. Actually, now they think about it more and done even more extensive renovations. That's also a secret sauce of ours as well. We're typically not a core investor, meaning buying the Four Seasons Orlando like a REIT and then just holding it for a while. We want to get into something where we can really add value and pull multiple levers. 

Jake: The other nice thing about investing in hotels, which I think investors appreciate as well, is there's a lot of different ways to create income streams and to create value. In apartment buildings, a lot of my apartment friends who invest in multi-family projects. They're tremendously wealthy and tremendously successful. What they do is kitchens and bathrooms. They renovate the kitchen, they renovate the bathroom, they put paint on the wall and then maybe they manage it just slightly better. In hospitality, we can do so many different things to create revenue and to create value. Part of the reason why we like full-service hotels and that's primarily where we play is because you can do even more value-creation activities and pull even more levers. On the flip side, limited-service hotels are very similar to multi-family, where you're really just selling rooms. It certainly could be positive, but in our view, it's a competitive advantage for us to focus on the full-service stuff, and there are plenty of people that can do limited service. 

Jake: So a new hotel from the ground up. You buy a piece of land and you have to get it entitled. What we always like to do is buy land where hotels are as of right, so we don't have a lot of risk with the city or with zoning. And you get a designer, you get an architect, you get equity, you get debt. You put all these things together and you come up with a plan. And the key is the plan. What is the business plan? Who is my guest? What do I want to do? What do I want to achieve? What do I want this thing to look like? And you combine all those different forces into this architectural set, into mood boards, into imagery. Do I want a very design-centric hotel? Do I want a more of a convention hotel which is just nice, with a lot of restaurants and a big pool? Do I want a family-friendly resort? Do I want a kind of adults-only sort of vibe? Do I want an urban vibe? What is it So once you figure that out, once you figure out where your demand is, then you can figure out how you're going to best attract those people, and, historically, brands have created a tremendous ability for hotels to bring in guests and get access to this big pipeline. 

Jake: There are a lot of cases, though, where you don't need a brand and you maybe create your own brand, or you create a soft brand that you partner with Marriott or Hilton to get into their pipe, but it's still your identity. In Fort Lauderdale, we have The Dalmar, and that's a soft brand that is recreated with Marriott. At Dalmar, the soap, the sheets, everything is our identity, but it's through the Marriott pipe. Consequently, we've done a lot of work with one hotel, and they have their own brand. They have their own reservation system and their own platform. They don't need Marriott, they don't need Hilton, and that's a true competitive advantage for them because they are appealing to a certain type of customer that loves that thing. 

Jake: Ultimately, I think the most important thing that anyone thinking about building a hotel needs to focus on is designing the best hotel and the best business plan for the location and what you want to do, and then you can figure out how to enhance that by either adding a brand or not. But if you try and go brand first, if you try and focus on creating a joint venture with someone, it's just not going to be as good as it could have been. There are so many people it happened a little bit in 2019 and 2008, where you hear about all these new brands starting, all these new brands like this one and that one, And this cool guy has a brand and that cool guy has a brand, and then this alcohol company has a brand, but they have no hotels, they just have this brand. I'd rather create a really great hotel, a really cool hotel, and then if it fits with a brand and that makes sense, then we'll do it. But if you lead with the brand and you have nothing to back it up, then who really cares? People really care about the hotel. That's where they want to be and that's the experience. 

Jake: And if you're fully reliant on the brand to get you over the finish line or to make it cool or to do the secret sauce, then you're missing out. You have to really understand the market and what's needed in the market And you can't over-design or overdo the market. I saw a hotel in Orlando that looked like a five-star hotel from the inside and the outside looked like a Hampton Inn. It just doesn't make any sense, right? So you have to. That's really a challenging thing And that's something that we think about all the time, but A lot of people I know in the industry big people I know in the industry have developed something great and then built around a brand around that, and that, I think, is really interesting, because you're starting with a foundation And then, if you want to do another one, people always know that this is going to be the DNA, this is going to be what you're known for, and I could do it over here. So, whether it's doing a ground-up development or a value add or repositioning or converting an office building to a hotel, you can be successful with anything, but it just comes down to the execution. It's like any business. 

Jake: DoveHill Capital Management is a vertically integrated hospitality investment platform, and we have a sister company called Wurzak Hotel Group, which I'm the president of, which operates the majority of the hotels that we have invested in. Vertical integration is one of our key differentiators and something that we're really proud of, and in fact, we've gotten offers to sell the management company multiple times, but it's way more valuable to me being vertically integrated with our investment platform. Then it probably is to someone else and it gives us the ability to control our destiny and execute how we want to execute. We don't have to rely on Anyone, and when we're raising outside capital, that's a unique thing. People like that hey, these guys know how to run a hotel. They're not just coming up with a pro forma based on what it said in the Cornell handbook. These guys have done it, they've lived it, they have a track record and that's something that we value. 

Jake: Another big thing for us is design, creativity, and food and beverage. Those are things that I love and I spend a lot of time doing and thinking about, and I've learned from some of the best in the industry that do it. And that's part of the passion as well, and that's why we want to focus on full service because we have that ability to be a little bit more creative. Even if it's a Hilton, even if it's a Marriott, even if it's a Sheraton, if you go into one of our hotels, you can see that extra touch, you can see the attempt to create an experience, you can see that it's not gonna look like the Sheraton at the Tulsa airport. It's going to look different And that is something that's important because at the end of the day, it's both an operating business and a real estate investment. If this thing is throwing off a ton of cash and it's great yield, but it's in a kind of crappy market and it doesn't look all that great, people are gonna feel good about paying you premium dollars.