Empowering Communities Through Hospitality Investment - John Marsh, Marsh Collective

Josiah: The money people in hospitality - investors, developers, and owners - are sometimes viewed with suspicion because of some who focus on short-term profits to the detriment of guests and the people that work in hospitality. But the person we're learning from today is going to make you rethink everything, with a fresh take on how investors can be a force for good.

I spent the last few years of my career working in the investment management world and through connections I made there was introduced to the work of John Marsh, co-founder of Marsh Collective. John oversees $2 billion in real estate around the US as an investor and hospitality is a big focus of his work.

In this episode, you'll learn how hospitality can cause places to thrive and how thinking holistically about people, place, and capital can provide an advantage. Let's jump into it.

Josiah: I'd love for people who are unfamiliar with you and your work to give them a little bit of context and to understand the person behind the business, behind the movement of what you're doing. So maybe just to start at a very high level, I wonder if we could spend a few moments talking about an overview of the work that you do and then we can transition to talking about hospitality. But how do you describe what you do? Because I know you're involved in a lot.

John:

Yeah, it's funny, we're ambassadors of hope. If you take it to the bottom thing, we work in people and places. We believe there's beauty in broken things and we believe that love is so rare that when you see it, the result of love is beauty. And hospitality is a form of beauty. We live in the South, we celebrate this wonderful culture we're in that's been often so misrepresented. Southern hospitality is a gift and it's amazing to live here with people who live with love out in front so much.

And so the kindness of strangers is something that's so disarming. And so what we do, Ash and I have built 60 companies over our marriage, 31 years of marriage, in just a few months. We've done 300 properties in 10 square blocks in our city and have saved our city, which we believe to save a place you need economic, social, and spiritual capital. You want to create human flourishing. And now you got to ask yourself, what's the definition of flourishing? And flourishing is when people who have the least experience the most a place flourishes.

And I love what my oldest son Nelson, who's in our businesses and drives the food and beverage, he says, "Dad, the number one thing a young person can give a city is his future." And so we've given ourselves to a place we've served 25 years and 10 square blocks and love this place. Charging hell with a squirt bottle every day making payments and trying to make stuff happen, no outside capital, but all the way bringing hospitality into construction, real estate development, food and beverage, retail bars, clothing shops, you name it, we've been in it.

And there's a huge difference in education and formation. It's the difference between having abs or not. Nobody gets abs by accident. You've got to do the work. And so we've done the work in these 10 square blocks. People started recognizing us from all over America and said, "Well, how do you do that?" We're like, "We don't know. We just drink Maalox and make payments and try to make this thing work." But we started codifying what we had learned along the way in all these businesses and ended up creating tools.

And tools are key because tools take complex things and make them visual and simple, right? And they're multiplicatable and they're portable, they're clear. And so we turned it into tools and now we're serving 12 cities around America, stewarding about $2 billion of redemptive real estate. And how we do that, we launch iconic restaurants in other cities. We have them going in multiple cities now, boutique hotels, and celebratory events. And we believe those three together are the future of saving cities.

That hospitality is the answer for perishing places. And so we've figured that out in a pretty unique way. The largest portfolio we manage is $200 million in Winterhaven, Florida, and then the portfolios get smaller, even one down to a town where a population of 800 we're working. So this is a scalable model to save small towns in America and to work at the intersection of purpose and profits, to make your Sunday school teacher and your economics teacher happy. So that's what we get up every day and do.

Let me tell you the vision for what we have because I think it would add value to people. We went through starting iconic restaurants and it worked to transform cities. You build a two or $3 million restaurant in a place that's dead as a hammer, slight light in a torch in the midst of a dark room. I mean, people know it because it takes them from it being impossible for their place to grow to possible and it becomes probable. That's the journey, right? Impossible, possible, probable. And investment works off of possibilities, right?

So money follows that possibility. So we'd go build iconic restaurants. Then we started building event spaces. We call them celebratory events. So like Ash and I have had a wedding venue and a celebratory event space for like nine years. Now we've got two more event spaces. So we love event. The event business is a heck of a business now.

Josiah:

Why is that? Tell me about this.

John:

Well, first it's Airbnb for space. Like our event business, we got one and a half employees running about 40,000 square feet of event space because we open it, we close it, we clean it and we deal with people kindly. And the vendors all pay us a percentage of gross to do it. 15% of the alcohol gross, 15% of the food gross and so it's a heck of a business to get things going. So we've done events, we've done that and then started doing overnight stay. We started saying, "Whoa, whoa."

But here's the aha, guys. 25 years of work to get to this place right here and I'm so dang excited I feel like a mosquito in the nudist colony. I'm telling you, it's got me shook up. So it's this idea that you can take food and beverage, overnight stay celebratory events and weave them together under one ownership, back-in services of marketing, HR, and everything, shared services model and create something that is a powerhouse.

We've all been to a town that had a great little hotel, that had a great restaurant and a great little event space but they weren't connected together and the impact was limited. So our future is to take the model we saw in Italy from the '70s when they said Italy started working in diffused hospitality. They called it a scattered site hotel or horizontal hotel, no built structure. We believe this is the future. Nobody goes to a big tower box and goes, "Man, I love riding them elevators, don't you? I love them stair corridors that smell like hineys." Nobody likes that stuff.

You'll do it but it ain't what gets you excited. But when you're diffused and you become almost a temporary celebrated member of the community, that changes everything. And so we've realized if we can do this and the cost per key that we're getting is ridiculous. I mean, we can build stuff in $80,00, $90,000 a key and that is unheard of. If you're talking about $400 ADR, you can't do that stuff. We're building $3 million restaurants and bolting on the event space. Well, and all that together I think we sit on the top of a rocket ship. The system we built, and the models we built, are the craziest good thing to do good and do well I've ever seen.

Josiah:

I love that, John. And you have an amazing personal story that I'm going to link to a couple of places where you've told this story in the show notes of this episode because I want people to hear it. You've gone into detail. It inspired me a lot. It's one of the reasons I wanted to speak with you. So I encourage people to go and listen to the full story of how you describe that because I appreciate you sharing it. It gives context and color to some of the things that we'll talk about today.

But one of the other reasons I wanted to bring you on was to give a more nuanced perspective on investment and development. Because in the hotel industry, sometimes there's a somewhat adversarial relationship, where it's like the owners and the finance or the money people have kind of these motivations and then us providing hospitality have a different set of motivations.

And you are on the investment development side of the business, at the same time you are leading with care and bringing hope and you care deeply about people. And so I want people to understand that these worlds don't have to be separate because you found a way to bring these together and empower people and provide hospitality at the same time.

John:

It is. And what's happened and it happened in the building industry, it happened in development. We've become a place where it's spreadsheets and driven by private equity instead of by personal passion. Now, this is not the way it was in the past. I believe if you look at the ancient concept of hospitality, we had hotels back in biblical times, like inns. This is a beautiful ancient art that in some ways has gotten perverted through the money driving the machine.

And we just said, "Hey, it doesn't have to be that way." We said, "We're not going to do that. We're not going to extract value. We're going to add value." And so not only do we invest in them, not only do we build it and develop it, we're going to operate it. And so we're building a 60-room boutique hotel right here in our town right now on our diffused campus. It'll have eight restaurant concepts, 60 rooms, and three event spaces, all on a seven-acre site in the core of a small town in Alabama called ... This is Opelika, hope you lika. Is what it's like.

So we're building it and we believe hospitality has the power to heal places. Nobody goes to a city and said, "Man, I had the best time of my life. I had this amazing dinner." What was it? "Ruby Tuesdays." Nobody says that. Their goal is to disappoint you at a rate you'll stay in. That's what they're hoping for. But we will travel for iconic things where love shows up because love looks different. Love looks different on a biscuit, it looks different in a boardroom. It looks different everywhere you put it.

And so we believe that's the answer to bringing hospitality. And understand, people can share age, race, they can share economics. The thing that's causing the disconnect in the value chain you spoke of is values. We've got misaligned values. And it's because there's no general contractor for vision. Who's sitting over the top of the whole thing and saying, "Everybody on this team ought to care for one another, ought to work together to celebrate one another and the capital ought to be patient, productive, and properly aligned."

It's not all about profits but it's not none about profits. Right up there with air. You got to have the stuff. This thing runs on cash, but if we want to get not decent returns but irreplaceable returns, we're going to have to do it differently. And it brings proper alignment. If your car is out of alignment, you can drive it, just eats the tires up. Business is out of alignment, it eats up the people and the cash.

Josiah:

I love that. And I'm curious because sometimes I'll talk with hotel developers where that's the business. Basically, they develop hotels. You work across sectors, so you develop so many different things and you don't have to develop hotels or build hotels but you do. So you're building this boutique hotel, you're building these restaurants. Is that why you're doing it? Doing it as a catalyst for the community? Is that where you've chosen to develop the hotel?

John:

To be honest with you, I can't figure any better way to transform people's lives, to add value to communities, and to build amazing portfolios of real estate that's worth a ton. It's just the intersection of everything and I don't have a plan that works without it. It's the only plan I got. So I have to apply it to everything there is because, I mean, there ain't nothing you can do in a small town like a great restaurant except a meth lab and they're against the law.

Josiah:

Yeah, yeah. I'll be really interested and excited to watch this journey and it is not a new one for you, John. I know you've been involved in this for some time. So there's a global audience that listens to Hospitality Daily. One thing that stands out to me is you have this really interesting combination of looking everywhere for inspiration, but you also really care about your local community and you're proud of where you are.

And just this morning you were posting some inspiration from Copenhagen and stuff that was built centuries ago and we might get into that. But my point is, you're looking around the world, you're very sophisticated in looking for inspiration from anywhere. You're stewarding more than $2 billion of real estate as you mentioned. But you mentioned early in the conversation about being kind of proud of the place you're from. And I'm curious for people that might be from other places, what do you think people might misunderstand about the Southern US or Southern hospitality?

John:

Well, first that we're idiots and unsophisticated. Now I was an idiot. I'm not anymore. I tell people I ain't as smart as you think I am and I'm not as dumb as you think I am. I'm in between. But we got the experience. There's a difference in education and formation. And I tell people, I said, "You can come and see. You don't have to guess. Come and see if what we're doing is not amazing." And it is. We've got great people around it and it's for love's sake that we do it. You couldn't pay us enough to love this much.

I believe hospitality is from our marriage to our companies to our community, to globally. It's an answer. And it's a dang good one. It's something everybody loves being treated with love, dignity, and respect. And if we do this thing right, it's more than rooms and meals. So much meaning happens at the table. You decide who to marry and where to bury. Life is happening within these spaces. They're hybrid community centers and places of care. They can transform you.

The greatest impact on what you believe is an experience if you come here and we love on you and treat you differently. So the South is full of loving care. Now, the marketing sucks for the most part. If we marketed ourselves as well as other people, I mean, our gifted guys that are here are craftsmen building beautiful steelwork and doors and construction. So I think what we miss ... So why do we need a non-violent revolution in how we develop places and spaces? Because it has to get a vertical alignment.

We're able to do things that is unbelievable, honestly. Because we speak to and engage the capital, the construction, the operations and we do it all from the point of care. So the first model we build is not the project model, it's the people model. We come in and say to ourselves, "Okay, if we're going to have a restaurant ..." Most restaurants, they're loss leaders. It's so hard because it's entertainment, it's manufacturing, it's production, it's wholesale, it's retail, and daycare, all under one roof. And the goal is to try to keep people in there from being drug addicts or messing with each other in the office.

It's not easy to wrangle this thing. But what we've found and we've built restaurants all over America. We built one in Midland, Texas a while back called Opal's Table. This is an incredible rocket ship of a restaurant. 85-seat restaurant doing almost $3 million a year and done with a guy who had never had really any scale restaurant before. But the challenge came because the restaurant business is a unique business and I've had the pleasure of crashing quite a few myself and so that taught us a lot.

And what we realized is the tension is between beautiful and thoughtful and then the finances in the system being beautiful and thoughtful and see what we need is a franchise system for the disenfranchised. And that's what we built. We built a backend platform that allows us to vet operators, vet concepts and align them all the way up the value chain. So for example, we start with a restaurant. We say the restaurant's going to be in our space. We need to get an operator. We want them to be in a lot of models, owner-operators.

So what we'll do is we'll figure out their whole theme, work out all the details, and then they have ownership. And when they hit break-even, which is the key in these things, is to survive before you thrive. When they hit break-even, we start doing revenue sharing where it's a percentage-based rent hooked to a new base rent. So what it does is every year it ratchets the new base rent to a percentage of gross.

And remember in the restaurant business, the first million is, there's not much money in it. Second million, there's a little bit more money in it. Third million, now you're talking. So it's like 10%, 20%, 40%. So as you watch it go up, we need to share that together, if we and the operator are in alignment. And what we do is come to the table with a lot of sophistication and TI, we align with them and we want them to make so much and do so well and love it so much that they'd never dream of leaving.

So it's the alignment early. So the rent is not designed by how much could they pay. We ask ourselves, how much should they pay? And we know the number because we built the proforma and agree with them and help them get there. And now we're building for their good. We're their number one partner, their greatest advocate. And then as developers, we're taking, we've got 60,000 email addresses in our county, demographically and psychographically divided because we take all of our facilities and use WiFi routers to take physical presence and turn it into digital presence.

So we're building demographically divided-up email lists and our Facebook communities have over 400,000 in them. And so all that is in service of saving cities. Now, not the kind of stuff to push a podcast that content but in saving a place. But what we realize people long for is hyper-local information. So then we've got our restaurants sending out hyper-local information that people actually care about.

And so that's kind of an example of the value chain. So when the money comes in, all this other's already worked out, we're not going to private equity and say, "How much can we get?" Because they're going to cut ... They take the love out of sex, if you give them a chance. Them folks ain't going to do that to us. We're not going to let their spreadsheets drive us to have a place that disappoints us.

Josiah:

One of the things that really stands out to me looking at you in your work is the sophistication and the planning that goes into this. Because you're a very charismatic guy, you can very quickly get bought into the vision that you're selling. But that's one thing. And honestly, things peter out if you don't have the chops beneath that to bring that to reality. And so what's cool, I talk to a lot of people, but I see a level of planning and sophistication here.

You talk about the people platform, the amount of technology, the precision in communications, the financial savvy and investment savvy to pull this kind of stuff off. It takes all of it, right? And I think that's where you're able to take this good message, which I think we can all get behind and bring it to reality. So if our listeners are left with one thing, I hope it's that, yes, make sure that you're going in the right direction but you also need to be good at what you do.

John:

You have to have good models. It took us years to get a model that could describe what we're talking about. And for us, the future of our hospitality, we see. Now remember, we're at a small lens here because all we want to do is save historic places, small towns, 50- 75,000 or less, and unique iconic projects. So like we've got a project outside Fort Worth that we're building 40 boutique hotel rooms, a fine dining restaurant, a teaching farm that grows all the food, a middle school, and a high school that's on campus that is served by that hospitality thing, all woven together with for-profit and nonprofit capital.

And so these things, we're building unicorns and that's what people care about. I mean, they care about something that is so authentic. We don't make it something, we reveal what it is. It's a whole different mindset. I mean, the three questions we ask ourselves about every company in every community is, who are you? Who do you serve? And who's going to pay for it? If you can't answer who you are, that's identity. And you can't tell who you serve, which is your community, you're not going to find the money.

We never have money problems, money chases vision. But the clarity of vision is hard because if the price is fuzzy, no price is cheap enough but you get a real clear price and the price gets cheap. So it gets easy, and people pay the price. So what we did, was we knew the models had to make sense. And one thing I love about hospitality is we're able to roll all the income up into a platform where we can take and do amazing things with it because we're landlords as well. So think about this, a dollar of operational income and a dollar of rent are not the same dollar, right?

Okay. So a dollar of operational income may be three to five times earnings. You put it in rent and it's stabilized. That thing could be worth a lot more to a six cap or an eight cap. And see, we're aligning the value all the way from the capital to the operations. And when you do that, you're able to share this value chain in a very unique way, okay? What's happening is all the disciplines are bifurcated in the world now. You've got capital, you've got design, you've got operations, these are all disconnected and they're fighting against one another. They're competing instead of completing.

Well, we found a way to align the value chain and that starts with us being the general contractors of vision, okay? There is no general contractor of vision. Even if you have a lot of money, it puts the investor or the private equity or an asset manager as the steward of the whole vision. That's not enough, my friend. You've got to be able to speak all the languages to do that. You've got to speak architect, you've got to speak landscaper, you've got to speak material types, you've got to speak ... There are a thousand disciplines.

And what happens is when you get all these voices in the conversation too early, the things a Brunswick stew of ideas, and it's not great and it's not horrible. It's just a disappointing lukewarm Brunswick stew. But now you get something driven by a dang gifted person that has a passion for loving people and sees them to the detail, that's a whole different ballgame.

Josiah:

So let me ask you this, John. Again, I encourage people to go back and listen to your personal story in some of these podcasts I'll link to in the show notes.

John:

Yeah because they're not going to believe how stupid I was. It's going to surprise you guys.

Josiah:

You had quite the journey.

John:

At 23 years old, I was a million and a half dollars in debt, $99,000 overdrawn, hooked on meth, and about to hang myself. So you go check it out. You'll see. I guarantee you, you're all smarter than me.

Josiah:

Well, it's an incredible story, John. And I guess my question for you is, having heard you talk about your story in the journey and you kind of learning as you went, from my perspective, you are operating in a way that is dramatically different from others in the space. So I'm curious, who or what did you look to for inspiration? Because you've ended up in a place that few, if any, are in. What has been your inspiration or what do you look to for reference or inspiration as you've been building this?

John:

I mean, it starts at home. My wife is the most hospitable, kind, generous leader I've ever met. She brings hospitality to our marriage. And I'll tell you a few ways I see her doing this. And this is a simple example of whoever's driving ... Mr. Truett Cathy of Chick-fil-A, he had us speak years ago and he spent the afternoon with us. And I said, "Truitt, how'd you come up with making a business making chicken?" He said, "Well, it wasn't about chicken, son." I said, "It wasn't about chicken?"

He's like, "Oh, no, no, no. It's about treating people kindly." He said, "I decided that we may be the only kind word they hear every day and so we're going to be kind. Now, we're going to make good chicken but we're going to treat people kindly." I said, "Well, how do you find kind people?" He said, "That's what you look for. You don't look for smart, you don't look for ..." "You can teach skills. You can't teach kindness." So my wife is kind, so give you an example and it's all over.

She said, "You know how I give you hospitality at home?" I said, "Well, tell me somehow how you give me hospitality at home." And she said, "Well, I take and even when I put creamer or things in the refrigerator, I turn the label so it's easy for you to see." She said, "I'm constantly setting you up at every turn so that it's a little easier for you." That's kindness. That's hospitality in a simple way. A cold glass of water is kindness.

But she does it across the board. We're on a Virgin Cruise. We went on this Virgin Cruise. So if anybody could redeem hospitality, it'd have to be Branson, this crazy dude. Because cruises suck for the most part and the food sucks, it's just not a good environment most of the time. So we went on Virgin Cruise, and we liked it. The food was good and so we're on the cruise ship and there's this lady that's helping and they've got an international community on there.

They're hiring through, I guess, the HB3 visa to get people in. And they're doing this, which we're looking at for our community, HB3's, the educational version, maybe say whatever the number is. But anyway, we looking at this and so this girl from, I think, South Africa, she comes around, her eyes are squinting, she treats Ash a little harshly. Now I'm like, "Whoa." Now Ash could have got snotty but she didn't.

The girl came around twice, treated her kind of rough, and said, "What's going on? Well, I forgot my glasses, I'm going to have to go this whole three months sailing without my sunglasses." And Ash opened her bag and said, "Would you like to have a pair of mine?" And she thought, borrow it. She picked the most expensive, nicest pair in there. Ash said, "I'd love for you to keep it if you would." And the girl just smiles and she treats us with love and kindness.

One other one like that. So we are having a great bottle of wine. I'm interested in the wine. It's Italian, it's fabulous. The sommelier opens it and he smells the cork. She said, "Baby, did you see him?" I said, "No, what'd he do?" She said, "He just breathed it in so deep." She said, "Get him a glass." I gave him a glass of it. He just lit up like crazy. Went behind the wall, drinking it and you could see he was so excited. So at the end of our meal, she said, "Now that wasn't enough, John. What you need to do is give him a bottle to take home for him and his friends and take back to the room." Do you see what I'm saying? It's noticing people. That's the whole business.