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Welcome to Defining Hospitality, the podcast focused on highlighting the most influential figures in the hospitality industry. In each episode we provide 1 on 1, in depth interviews with experts in the industry to learn what hospitality means to them. We feature expert advice on working in the industry, behind the scenes looks at some of your favorite brands, and in depth explorations of unique hospitality projects.
Defining Hospitality is hosted by Founder and CEO of Agency 967, Dan Ryan. With over 30 years of experience in hospitality, Dan brings his expertise and passion to each episode as he delves into the latest trends and challenges facing the industry.
Episodes are released every week on Wednesday mornings.
To listen to episodes, visit https://www.defininghospitality.live/ or subscribe to Defining Hospitality wherever you get your podcasts.
DH - Walter Peseski
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[00:00:00] What I do is inconsequential. Why I do what I do is I get to shorten people's journeys every day. What I love about our hospitality industry is that it's our mission to make people feel cared for while on their journeys. Together we'll explore what hospitality means in the built environment, in business, and in our daily lives.
I'm Dan Ryan, and this is Defining Hospitality.
This podcast is sponsored by Berman Fall Hospitality Group, a design-driven furniture manufacturer who specializes in custom case goods and seating for hotel guest rooms.
Dan: Today's guest is a hotel operations and asset management leader with 20 plus years in the industry. He's an adjunct professor at Dallas Baptist University. He recently wrote a contributor piece for Hotels Magazine on the benefits of third party asset management. He spent a lot of time helping clients with hotel acquisitions and business development. He is currently the Senior Vice President of Asset Management at Garfield [00:01:00] Public Private. Ladies and gentlemen, welcome Walter Peseski Welcome, Walter.
Walter: Thanks, Dan.
Dan: So I'm very happy to have you on because we had Steven Galbreath on a few months ago, and it will be nice to see how his function and his, uh, sharing of his story.
Collaborates and, and, and works really well with what you do on the asset management side. And I think I also love the types of projects that you guys work on, bridging the gap between cities, towns, municipalities, and developers, where sometimes the numbers, it's hard to make them work and it requires a certain set of skills.
And I love how the stories that he shared of past projects. It wasn't all about just making the hotel work, it was about being accretive to the entire community and town or city around. So I'm just really excited to have you on and Thank you.
Walter: [00:02:00] Yeah. Thanks for having me. I'm excited for our conversation.
Dan: before we get into the conversation, Walter, what does hospitality mean to you? And you're a professor, obviously you have passion and you like, you've been in this industry for 20 years. Like what keeps you here in hospitality on the development side?
Walter: I ask my class the same thing and, and my definition evolves over time. Right? I think if you're looking for an objective definition, it's, it's really the heart behind the service. If, if service is the technical delivery, right? Hospitality is, is is why you do it and how you make people feel.
And, and personally I think. The definition of hospitality is that warmth you feel when you serve or when you are served, right? I, I give you def definition. My wife and I went out to, for Valentine's Day dinner last month. Uh, we went to a Mexican restaurant and, and it doesn't happen often, but the, unfortunately, you can tell this server [00:03:00] genuinely wanted to be there.
He genuinely to serve and, and, and. I think you've, you experienced true hospitality when it makes you want to tell people, right? So in that particular instance, we, we, I, I sought a manager and just said, Hey, just wanna let You know gentleman was fantastic. He, he, he was, he was terrific at his job and she responded back to me, thanks.
He's brand new. And, and I think that is, that is the
Dan: Wow.
Walter: definition of hospitality. Somebody who wants to be there, right? Um, so.
Dan: I love that you did that, first of all, 'cause most people don't, most people they'll only do that when something wrong happens. Right. Um, at Bermanfalk, where I'm a part of and, um, we do custom furniture, it's really difficult. There's a lot of moving parts. We just started in the past year celebrating unsolicited.
Positive customer feedback to me in any company that is like the best thing ever. When it's uns, you're [00:04:00] not asking. It just comes because in order for that to happen, and it doesn't happen all the time, but when it does, it means that all the other cylinders are firing and doing the right thing. So I commend you on that and I wish that everyone would do more because we, to build a hotel to make anything.
It requires thousands and thousands of people and man hours in the globe, and it all comes together there in, in the hotel space. But it's really hard and oftentimes we're also busy doing everything. It's nice to talk to your vendors and just give them a, a, a, give them a shout out. It really goes a long way, and I think it ties into the heart behind the service as well, right?
Oftentimes it's like we're shouting into a thunderstorm, but it's nice to take those moments and pause.
Walter: I, you're absolutely right. I think, You know, like you probably travel often, um, and tell you how many hotels I've checked into how many restaurants I've gone to, where by definition. Their hospitality establishments, right? Hotels, hospitality at [00:05:00] restaurants, hospitality. If you go a cruise, a cruise ship is hospitality.
But when was the last time the service was memorable? And, and, and un unfortunately that associates are doing a bad job. Right? But you just didn't feel, you didn't feel hosp, hospitality. And so my definition to you would be those times that you really remember that experience and, um. And I think it also goes hand in hand with the product, right?
I think so many times people fall back on, You know, if, if, You know, the, if hospitality is, is out of this world, but the product is terrible, it doesn't matter because people, and I, I don't, I don't subscribe to that, right? I think the, the product and the service have to go together. If one's missing, the whole experience is off.
Um, but if they go together, that's when, that's when the magic happens.
Dan: going back to that metaphor of building a hotel, developing a hotel, renovating a hotel, so to all of our listeners. Tell us in your [00:06:00] own words, what makes Garfield public private unique? Because what I love about. Hospitality and really any business, the, the most successful businesses are the ones that have a real special niche that they live in, and they, they work it and they, they not that they strive for that unsolicited positive customer, client, town, city feedback, but you gotta do all the right things to get it there.
And it takes a real focus and dedication. To do that thing as well as you can at the expense of not chasing so many other things. So tell us in your own words about Garfield Public, private, and Yeah. And then we'll take it from there.
Walter: Yeah. So Garfield Public Private, we specialize in public private partnerships, right? And what that means is a public entity wants infrastructure built and they invest money and a private partner comes in and invests money to make something happen, right? And, and, and our bread and butter. So we have two sides of the business.
We have one that focuses on hotels and convention [00:07:00] centers, and the other side that focuses on performing arts and cultural. Infrastructure. So performing art centers, expo centers, et cetera. So my, my, I sit on the hotel and convention center side, and really when you think about what a hotel and convention center does for a city, it's not just, not just oh's a there's a hotel there. Um, let's go. It's it, the meeting space allows. of town business to come in, stay in the hotel, and more than that, they go and they're an economic catalyst for the entire city or town or county. Um, and that's what makes us different. So we, we don't hotels and convention centers to maximize. Our profitability.
Right? So if you're a developer, you're trying to, you're trying to extract the biggest yield you can from a development that we don't do that, right? We act as a fiduciary to the city. We work side by side with the city, so. Uh, it [00:08:00] usually starts out, the city calls us and says, Hey, we, we know what, we're aware of the work that you've done.
We're interested in this infrastructure, hotel convention center. And so be it. Help us, help us figure out how to get from a dream to actually opening it. And we walk through the entire process. So anywhere from, um, hiring the right consultants to what brand should be here. How big should the hotel be? How much meeting space?
What do the restaurants look like? Okay. How much can you afford to build? Um, and we walk all the way through helping them think of creative financial solutions to fund the hotel. Um, and then again, usually over a three year process, eventually that facility opens and, and it's a boon to the, it's a boon to the city, um, and environment that's built in.
Dan: Because I remember, um, when we had Steven on, he was talking about Baytown. Uh, it's ki it's kind of down near Corp. It was a Corpus Christi or Houston or between the two where.
Walter: Yeah it's down near Huston
Dan: near, it's near Houston. [00:09:00] Okay. But he was saying that once it opened, it was immediately accretive to the entire town and the entire environment, and it wound up being a really successful project.
On my question is. When the development is start, like you have to talk to, I remember he was talking, you're talking to mayors, city managers, board city, board of supervisor, folks. Like it's very diff it's like a whole different world of navigation and than the typical development world and entitlement world.
Um, but is he kind of leading the charge on the front end trying to like, okay, what's your dream? Let's do that. 'cause he's the development chief development officer, right? And head of design and construction. I know you wrote an article on the benefits of third party asset manager or asset management, but for our listeners, if you could just explain the difference between the hotel management company and then the asset manager.
Because to many people, as I talk to them just out and about, it's like, okay, well do asset [00:10:00] managers and hotel ma, like management companies. Where do they overlook? Do they overlap? Where do they overlap? Is really the asset manager, making sure that the, the property is performing the best by incentivizing and disincentivizing the management company.
Like walk us through what are the benefits of third party asset management? How does it all work and once the building is developed, are you involved before, during, or more after? Like where does your role take place? Mo, mostly.
Walter: My answer to you, Dan, is yes. So all of
Dan: Great. I love it. D, all of the above.
Walter: to go back to your first question, so yeah, Steve, Steve is our Chief development officer, and Steve, um, his background is, is. Architecture. Um, so he, he has a unique skillset that he is, is excellent on the, on the capital structure side. And he can marry the, he can marry with, he can marry the city and what they want [00:11:00] versus how much it actually costs to build what they want and then bridge that gap. To answer your que the second question. To the extent that the hotel manager and the asset manager overlap, it's that there's oversight of the hotel. Now, they differ because, um, while they both look to the owner's interests, right? The, the management company focused solely on the day-to-day operations, right? So how, how can we effectuate. greatest profitability of the hotel and how can we steward the hotel? Um, the asset manager looks at that, but from the vantage point of the owner, right so uh, when we look, yes, manager asks the operator questions. So, why did You know, why are we underperforming here? Why are we purchasing this? If there's an, an investment that needs to be had, whether it's a capital improvement for one of our hotels, we're talking [00:12:00] about, um, about. Redoing the coffee offering, right?
So do we out a coffee shop? Do we bring in a Starbucks or do we source it from a local coffee purveyor? So are all questions asked from the ownership perspective of what, what maximizes the value of the asset, not just the operations of the hotel. I think thats the biggest difference between the two.
Dan: There's many different types of ownership groups, right? From REITs to pension funds, to just family offices, to syndicates of investors, general partnerships with a whole bunch of limited partners that come on board in the REIT model. I know that they own it.
They can choose how to expend the capital to, to renovate, maintain, extend, but at what point does that line stop? Then the management company can only do things.
Walter: So the REIT generally, or any ownership group generally not get involved in the day-to-day operations. They'll ask [00:13:00] questions after the fact. So whether it's the munch, the monthly budget meetings, or weekly commercial strategy meetings, they ask the questions, but their hands aren't in the sausage as far as setting rates, setting, You know, scheduling shifts, that's all.
That's all to the manager. now where. Where ownership groups generally, not just REITs, where they get involved is really, when it comes to deploying capital, right? So, if there's a renovation that comes, they, they, they hold the purse strings, right? If there's, um, a cap, if there's a,a ROI project that needs to be done. Uh, if management wants to bring on a new sales position, oftentimes they have to get approval from, uh. Ownership groups. So really when it comes to the purse strings and how much money is spent, that is where ownership, uh, gets involved. But from the day-to-day operations, they, [00:14:00] uh, it's usually after the fact asking questions. Um, and again, it's forward looking too. So in asking questions you'll say, okay, what is our strategy looking forward? Um, but it's not in the day to day.
Dan: Hmm. And then additional, so thank you for clarifying that.
Mm-hmm.
Um, many ownership groups like there's on that, all the different types of ownership groups from REITs to family offices and all things in between. Um, oftentimes. They'll hire a third party manager or some, oftentimes they won't. They'll, they'll try and asset manage themselves.
At what point does a REIT or an ownership group have enough scale to do their own asset management? And then where are the benefits and at what point, at what point does it not make sense to have a third party asset manager? Like at what scale or do, do you have a thesis that third party asset managers benefit everywhere?
Walter: they do benefit everywhere and, and. And what I would say, look, I'm not, if you have a certain scale, [00:15:00] I would say once you hit five hotels and you plan to continue to grow, and Mike's makes sense to bring it in-house, right? Um, but before that, um, it, for instance, our expertise and, and, and, and where we've kind of carved out a niche is, uh, city owned assets, right?
Or university owned assets or. A hospital wants to build a, a large hotel on campus. They're not real estate owners, they're not hotel owners per se. Uh, but a hotel is, is such a complex piece of real estate, right? Used to reset rates every day. So it's not long-term leases. Um.
Dan: and there's just within certain types of hotels, uh, on the upper midscale and above, like there's so many different channels of business in there from f and b to bicycle rentals to, You know, you name it. But it, it, it just seems so complicated to manage.
Walter: it is complicated to manage and the larger it gets, the more ownership [00:16:00] needs to look at hiring an expert to be on their side, right? To ask the right questions, to provide a different perspective. And then I'll often say that, that, um, it, it doesn't take much for us to look at an asset, to talk to an owner to say, Hey, uh, let's see, let's see some low hanging fruit, and, and oftentimes. Any fee we generate from an asset management perspective is made up in the first year. We, we, um, we find easy areas to either push, to pull, uh, ROI projects to spend on, um, and really be that owner's advocate. Where, where, if you're an owner of a hotel, you can, you can get away from the daily, daily oversight of the hotel. Focus on what you're. whether it's growing a platform or, or, or whatever it is. And, um, let a third party asset manager, uh, help you. Um, so yeah, I think, I think it's helpful for every asset management period is helpful for everybody. Now, whether you need to [00:17:00] hire a third party, I think to answer your question, that scale is about five.
Um,
Dan: But then probably on these hospital campuses and cities and universities, like you said, they probably have a lot of asset managers for the managing their infrastructure, but when you throw a hotel in the mix, they're just like, oh my God. This is a whole other level of complexity.
Walter: That's right. Yeah. Hotels are completely different at Dan. I think when you look at, even when you look at multifamily, right? They, they're 12 month leases.
Dan: Yeah.
Walter: There's not restaurants involved, there's not spas or, or large convention centers or, or, um, there's just so many moving parts in a hotel. Um, it's the, the operating leverage is so high that you really need an expert on your side to look at that.
Dan: What's also unusual about hotels, and I'm glad you brought up the multifamily. I was talking to a multifamily developer, um, the other day on the way back from Canada, and he was saying like, he really just likes [00:18:00] multifamily because what he focuses on is, uh, tax advantage, cash flow to all of the investors, right?
And what he. What he, what scares him about hotels and it's also what he knows, right? But what scares him about hotels is the amount of CapEx that's required to maintain, keep up to, um, up to speed with the brands. Um, there's hotels I think more, more than most other assets in real assets. They expend so much more and need to make.
And they need to allocate so much more capital to the capital expenditures to keep things new, fresh, but also just maintain the infrastructure that's there.
Walter: bigger the hotel, the higher that check is right and in a small way, the, it's, it's, it's, it's a franchise, right? So you, you are beholden to what the franchisor needs you to do. You need to meet certain quality scores, you need to meet certain guest satisfaction scores.
And if you don't meet those scores, your cost to catch up significant. [00:19:00] Uh, so especially when you, when we talk brands, yeah, you're absolutely right. And that's another reason why asset management is key. Because look. We have such great relationships with the major brands and um, we know what they look for.
We know, I, I, if the time comes and a hotel needs to renovate, we can assist ownership on pinpointing areas that are gonna drive the biggest return. Right? So, um, I'll give you an example. This is very, a generalized statement, but a brand might come in and say, Hey, need to, they might write you a. A capital plan and say you need to, you need to do 40,000 a room, uh, in order to, to meet the new standards.
Right? And we can look and, and we can say, well, look, service scores aren't bad. Service scores might be saying that the, the lobby needs to be renovated or the restaurant needs to be renovated, or just a carpet's bad. We can pinpoint that and we can negotiate on ownership's behalf to, to really spend money. [00:20:00] Where it's needed and not just do wholesale changes because brand standards change.
Now um, brand brands, all brands dictate that, if you're familiar with how they operate,
Dan: You can negotiate.
Walter: yeah, you can, you can be, uh, the owner's mouthpiece,
Dan: And, and oftentimes I find, like if I read through, I've read through a couple of pips in my day, not nearly probably as many as you, but some of them are incredibly onerous. And especially like in a time when a hotel is struggling, when a, when an owner gets that, I would imagine there's like a level of freakout, right?
But. The hotel, if there's an economic situation or extenuating circum circumstances or whatever, there is a way to negotiate with the brands because the brands want to see you succeed. Um, one thing I heard at the lodging conference in October, it was the first time I'd heard, and I, I think it was Hilton that was talk, and this has come up in a couple of different conversations, but Hilton has figured out a way.
Do you have Hilton [00:21:00] brands that you.
Walter: We do, yes sir
Dan: Okay, so they figured out a way to incentivize and disincentivize, um, based on more heavily weighting guest scores, um, social media presence and all, and all of this stuff. And I don't know the exact economics of it, but it was the first time I'd heard that. Whatever the percentage that you're paying to Hilton, on top of all the revenue, if you're outperforming and really hitting all the marks on guest scores as it relates to CapEx and like the fit and finish of everything, um, service, et cetera, et cetera, they will, I, I think I heard, cut the, that fee by up to like 20% and I don't know if that's true or not.
So I'm kind of speaking out over my skis and conversely, You know, there's been all this talk about. Pulling flags, but I've, I've seen because the brands have been so focused on net unit growth, that they have been loathed to pull flags. They talk about it, but I haven't seen it happen a lot, but now I [00:22:00] hear it's happening more.
I don't know if there's truth to that, number one. Number two, if you're underperforming severely, not only is there a threat of pulling a flag, but they can charge you more. In the management contract, what's, what's your take on that? 'cause as someone who is so heavily involved in CapEx, like I hope that that happens more.
'cause I found that hotels have been deferring their CapEx for like six years now. And I just say that there's like this dam holding back a lake of deferred CapEx and whether it's tariff uncertainty, interest rates, labor costs, construction costs, I just want that dam to start getting chipped away at What, what, what's your take on that?
Walter: I don't think it's, it's not quite 20%, but they are giving you a discount on fees if you perform to a certain level. And I think that's, that's helpful. So the carrot and the stick, right? You talked about if you're underperforming, that there's a, there's a penalty charge. And I think that's, that's sorely needed now. I don't think brands are pulling flags as much as encouraging you [00:23:00] downscale, and I think brand families have gotten so big
Dan: And what do, what do you mean by downscale?
Walter: if you have a, call it a 1980s vintage Marriott.
Right. Rather than saying we're, marry us, not renewing it, they're gonna say, we have a nice delta for you.
Dan: Oh.
Walter: Right? So, we often see that, or Hilton, if you have a Hilton, it might be, it might, it might encourage you to be a DoubleTree, right? If you have a Hampton Inn now and it doesn't meet brand standards, they might encourage you to be a spark right 'cause to your point, net unit growth is, is how brand families are scored and there's gonna be very high reluctance to remove units when they're trying to grow. they can, in order to, in order to maintain brand value, they can encourage you, force you to, to downscale to a different brand. And it might be beneficial, right? So if I have a Hampton Inn and it requires 30,000 a room, but if I spend it and I'm not gonna realize a return, it might be beneficial for me to become a spark.
Um so there's, so it's, [00:24:00] it's, it is, um. It is needed. I'm happy to see that. Um, now I, I'll say that there's a, a, a, a, a common phrase. The hotels are not necessarily overbuilt. We're just under demolished. And I think you'll, you'll see, You know, there's market that we're looking at now and there's a, um, an old hollow dome. Um, and if you don't talking about
Dan: there but its a cylinder shape.
I've driven cross country a bunch of times and I would always stay at this hol dome. It's a holiday in Dome, right in Kearney, Nebraska.
Walter: Yeah,
Dan: was a, it sm it had like a tiki bar in there. It was super cool. I could imagine people going on vacation there in the middle of the depths of winter to just smell the chlorine and, and have a pina colada.
But those things are super cool.
Walter: they're a architecturally unique,
Dan: Yeah, they have good bones.
Walter: to go,
Dan: Oh, just demol. Okay, so that's under demolished.
Walter: obsolete.
Yeah.
And so I think when you're seeing those and, and you can test [00:25:00] this. Wherever you see them, their brands are becoming, they're going downscale, right? So what used to be a Holiday Inn, uh, that might be a, a Crown Plaza, right?
Or it just, it, it just goes and,
Dan: over, not overdeveloped, but under demolished. I like that. Well, also on the net unit growth, and again, I'm not like a. A finance guy or a, I'm not listening to quarterly reports that often, but from my basic understanding, pulling a, a, if a, if a, if a brand was to pull a flag and it didn't stay in the family, the downside, the, the downside to the share value is like asymmetric to that one flag day poll.
Like I heard at one point, for every flag day poll, they need to replace it with three. Other ones. I don't know if that's true or not. Again, these are just things I hear at conferences, but it is interesting to hear finally something be talked about other than net unit growth. So growth for the sake of growth I don't think is necessarily a [00:26:00] good thing.
Walter: You know, I also think there's a lot of variables in that, Dan, right? So if you, if you lose a Inn, but you gain a Signia, right? That's, that's a drastic example. But I think really just it, it's. A key count really. It's a, a revenue's a big driver and revenue per key. Um, so it really depends. If you can't, you also can't lose a lot of big boxes and add small boxes because that, that, that doesn't work.
Um, a lot and, and, and look and franchisors are asset light, so it's, You know, they're, they're selling a franchise that it's, it's up to really owners to tr believe in those franchisors to want to continue to develop with them.
Dan: Is there a common blind spot you see when owners who are either below that five hotel scale or around that five hotel scale? Is there a blind spot that they typically have when they try to manage the assets themselves? Or are there blind spots?
I'm sure there's more than one. What are, what are the ones that you see?
Walter: I just think it's not having. [00:27:00] That experience, right? Whether that's the number of brands, the size of the assets. So let me, let me give you an example here. One of our hotels is brand managed, and it's a newer hotel, was built three years ago, and the brand failing the hotel QA scores for their towels, And management was prepared to replace all the towels, so they stopped failing their QA scores. But these were the same towels that that brand told us to put into the hotel three years ago. So it's not, rather than, than not trusting brand mat really asking the right questions, like why are we replacing those? Do we need to pushing back on the brand? I'll give you another example. One of our hotels had a, it was staffed with a full security department.
This hotel is not in midtown Manhattan. Um, it so and that's that labor, that overhead. Um. Really wait on the hotel. So, hey, how do we still provide that, that safe experience for our guests [00:28:00] without that, that overhead?
And I think without having that experience in different hotels, um, it doesn't give you that toolbox to be able to go and incorporate best practices from, from other brands into your hotel. Uh, You know, sometimes food and beverage historically has been even at best. It's often been accepted as a. As a, a revenue loss, as an amenity for the guest.
Recently that's changed and they've become profitable. But how you get those food and beverage departments to be profitable, uh, requires experience to see how your other venues have done it.
Um whether that's closing for breakfast, certain days, or closing for dinner on certain days or serving meals out of a different area. Um, being able to understand that. So just having that toolkit, that robust toolkit that. If you're a small operator, you don't have, I think that's often where they miss it.
Dan: Yeah, it's interesting 'cause on the branded hotels, the f and B seems to be a struggle, [00:29:00] mostly speaking generally. Um, but on the independent side, it's amazing. A lot of these, if they, because they really focus on the f and b part of it, sometimes they're driving 30 to 50% of the total revenue. Of the, of the entire property through f and B.
The crappy part from my understanding is that as profitable or as much revenue as that drives the, and if it's a lot of. B, so the bo the beverage, um, it can be even more profitable to the bottom line, but it's a drag when they go through valuations and financing and getting debt and they, the, the f and b, just like a spa and other things in a hotel, even if they're very successful, they're kind of a drag sometimes on the overall valuation.
'cause it's really the, the RevPAR or the rooms, the revenue driven by the rooms that really drives the value of the hotel. So it's kind of a weird double-edged sword that I, I feel like. You might be able to not pay the franchise fee on an independent hotel, but I don't know. I [00:30:00] feel like you're, you're, you can outperform with the f and b, but then you lose out on the valuation side of things.
Walter: Yeah. And that's where asset management comes to the, is a long-term strategy of ownership, right? So if your strategy is to ultimately sell, then that's a, that's a, that's a great perspective to have because yeah, valuation matters. We're actually working on a hotel now where food and beverage outperforms rooms revenue.
Dan: That's crazy,
Walter: So, but to your point, valuation, valutation will be impacted. I think valuation's also impacted is, is your rooms. Your room's profitability is 75%. A good food and beverage profitability is 40%. So I think that's, that's also where your flow, now, there's also overhead that you have to account for, but generally speaking, your rooms is more profitable now how your f and b. Is comprised, right? Is it conferences? Is it banquets, is it beverage? Is it food? and go coffee? That, that [00:31:00] all matters to what your overall margin is. But yeah, certainly something to look at. Um, and that's where we come in. We partnership with ownership, where, where we say, Hey, what is, what is the ultimate strategy here?
What is the ultimate goal? This is a long-term hold. Your strategy's gonna be different than if you want to sell and maximize your value in three years. And we help, we help owners talk through all that. It's, we're, we're often a i I. Relatively inexpensive sounding board for ownership. They're, there's, we come a side by side with them to work through it.
Dan 2: So I want to go back to the towel example you gave where the brand said they had to use it, and then over the course of three years of change and then you got dinged for it.
Um, I find, look, it's un. There's no doubt how much value a brand in anything, whether it's hospitality, product, food, you name it, adds so much value and you can just tell by looking at the, at the capital markets and, and, and. The stock market and stock prices and valuations. A strong band, a strong brand, drives [00:32:00] everything.
Um, but with, with, actually, this happened with a couple brands, but one in particular, they had me look at the brand standards that they had for furniture. And when you really go in and look at these, these standards, I feel like they should be more guidelines. Now. It's a balance between what the brand really is all about and then what these standards are.
Because sometimes the standards, especially as time goes on. They can really cripple you as technologies change, ways to fabricate change, like even just in furniture, just certain technology and joint joinery techniques and finishing techniques evolve. If you really followed those standards, in many cases, you can't make so many of, and you, you can't really push the envelope on design and execute and develop new things.
So it's, it, it is a difficult balance between, um, following, having a standard for a brand. But also just really using it as a guideline. And I think that's also based on what you said earlier, where asset management comes [00:33:00] in because You know the brands, You know how to have those common sense type questions.
Right.
Walter 2: That's exactly right. I mean, look, I agree with you. Brands drive so much value and, and, and we, um, we don't stray far from, from a few brands that we work with, uh, for that reason. Um, so yeah, they look, they drive value because they've done things well. Guests know what to expect, uh, but a lot of times that could be detrimental to ownership, uh, if there's not a true case to be had to institute certain brand, um, issues.
Dan 2: okay, so now I want to go back to your, the Garfield public private special specialty where you're dealing with local governments, universities, hospitals, um. The economics are different than a standard hotel deal, right? Where a developer's trying to maximize IRR and maybe not looking at the overall benefit to the entire community, [00:34:00] of course that would be good, but in your niche, how do you really uncover what's a, a good opportunity or a good deal from a really great one?
Walter 2: a great deal from a good deal is how much capital the city's willing to put into it. Uh, because that, that the more capital they put into it, the less. Inherent risk there is, right? Because the reason cities build hotels isn't because they want to get a screaming yield on, on a real estate investment, right?
It it is to generate demand in a community. Now, if it was a screaming hotel investment deal, a private developer would've came in a long time ago and done it. But the reason they haven't done it or the reason the city can't entice a private developer to do it is because it is not as high yielding as the traditional hotel development is.
And that's why cities get involved and that's why cities hire us to help kind of work through [00:35:00] that. And so, and traditional. If a city wants a hotel built right, there's really two options. They can entice a private developer to come in and do it. Whe whether that's donating land or giving or, or, or, or just contributing equity to a deal.
Dan 2: tax abatements or other things like
Walter 2: correct. Right. But. At the end of the day, the city is giving money to a private developer and having no control over it, right? So that private developer can, uh, hire who they want. They can bring in third party management if they want. They can sell the hotel in three years, and a nu owner's gonna come in and the city has no control over a key piece of infrastructure for the community, right?
Um, versus if they take that money, they were going to give to a. Private developer and instead use that as their equity in their investment for the taxpayers. Um, [00:36:00] they have complete control over it. They have, they have tax, uh, incentives. They, they can get lower cost of capital. Uh, they have full control over renovations over where they spend their money.
And again, they have the bigger picture in mind. It's not how fast can we increase the value of this hotel and flip it. It's how can this hotel contribute to the community? And that's the key difference. So where we come in and where, where, where Garfield is, is, has really led the nation in doing this. Is that because we've been doing it for 30 years again, that our toolbox is bigger?
We, we provide that, that finance. Finance capacity. We work with, with the key architects and key investment bankers that have done this before. And we work with them to wanna lock, uh, a lot of incentives and that can again, obviously close that capital, the capital stack. Um, and it's not like bonds, it's grants, it's, it's, it's, it's a whole [00:37:00] slew of things that we utilize.
Dan 2: In these public and private joint ventures. I know you mentioned convention centers, you mentioned hotels, um, hos next to hospitals, but where are you seeing now where we are in the cycle? Where are you seeing the most compelling opportunities in hospitality right now in these public private ventures?
Walter 2: Yeah, I don't think it's, I don't think it's changed given, given the environment. I think cities. I think cities are seeing competing cities. When I say competing cities, it's not necessarily nearby. It's similar demographics. Uh, they see the benefit that they're, they're getting from these developments and they want.
A piece of it. So we're getting calls from, from cities of all size. Sometimes cities are too small to do it, and sometimes the cities are small, but you just have the right size. You know, you're not gonna build a 300 room motel with a, with 40,000 square feet of meeting space that, that, that. That city just wouldn't bear that.
But, [00:38:00] um, I don't think, I don't think our targets or, or the, the more attractive opportunities has changed. Um, I just think we're getting a lot more calls of, of people wanting to do it. And this is cities of all sizes.
Dan 2: And then in your experience, and I'm sure there's a whole spectrum of answers here, but. In every project you have an equity and a debt component right to, to finance it. With a lot of these municipalities, are they able to float municipal bonds? Like how do they, or do they raise taxes or do they do both?
What do, what do you see mostly.
Walter 2: No. So it, it's, it is, it's bonds. Um, now they, so it, and a lot of it, again, this is where key, so, You know, sales and occupancy taxes, a lot of the times there's state rebates that, that, that cities can qualify for. Um, and again, so it really. A key piece of what we do is through revenue bonds. So cities sell bonds based on the revenue generated from the project, [00:39:00] and how do you rightsize those to sell that?
Um, that's really kind of where our bread and butter comes in.
Dan 2: Okay. And those are, those are because they're being issued by a city or a municipality? They're, they're municipal bonds, so they're tax free state and locally probably. Right. Oh, and then did they. And then as far, if you were to like compare the rates on those that they, that they sell out into the market, are those kind of all over the place as far as yield or are they kind of in line with what the 10 year
Walter 2: No, there, it's, it is significantly cheaper. Now there's gonna be different tranches of bonds, right? So your, your senior is gonna be significantly lower than what you'd find in the private market. Um, but depending on how many tranches of bonds, you might have a, you might have a third tranche of bonds that are inherently more risky.
That, that would be, that would,
Dan 2: Oh, 'cause they're third in costly, correct.
Walter 2: J they're significantly cheaper if you compare it to a private developer getting private financing. Um, but again, it just as you get down the [00:40:00] risk ladder, um, that cost effectiveness deteriorates because the risk goes up.
Dan 2: Oh wow. Okay. And then of all the different market segments from select service all the way up to luxury and all the things in between, is there a sweet spot or where in that ladder are most cities and towns in or municipalities investing in? Like, or is it kind of all over the place?
Walter 2: when you think about convention space, you have to think about what product fits convention spaces, right? So we've seen, and we're actually working on a few where we would do a traditional limited service hotel, like a Courtyard or Hilton gardening connected to.
Convention or conference center space, that's not ideal for us. Really. We operate in the upscale, primarily upper upscale, uh, segment. So you think about these, the major brands, uh, Marriott, Hilton Autograph, [00:41:00] Curio, Hyatt Regency, um, we did a new build, DoubleTree, which. Isn't happening a lot in today's market.
Like it usually double trees or de flagged Hiltons, but we've probably developed the nicest double tree in the system. Um, and again, that is because these cities, it's often the, if not the first, it's, it's a key piece, a key hotel in their community. And if it's a first mover community like we've done, where you're going from, the nicest product was a courtyard.
You can't just go to a Ritz-Carlton, right? You can't just go to a a Hyatt Regency. Sometimes you have to go to, hey, what's in between. In that case, a DoubleTree was in between and it does incredibly well. Um, so to answer your question, our sweet spots, usually when I say upscale, you think DoubleTree to upper upscale Hyatt Regency Curio autograph.
Uh, that's kind of where we
Dan 2: because I, I, guess that most municipalities [00:42:00] probably wouldn't want to do a luxury property because it would leave out potentially a lot of people.
Walter 2: I would say that if a community can bear a luxury property, the economic environment is such that a private developer can come and do it.
Dan 2: Wow. Who knew all of this? You obviously. Okay. Well thank, like this is like my, uh, my crash course. So as much as I'm learning, um, you also teach.
Dan 2: So when did, as far like your work, you're doing all this work, you got your day job, your vocation. When did you decide that you wanted to cheap, uh, that you wanted to teach?
And when did you, um, like what benefits do you get out of that?
Walter 2: look, I studied hospitality management as an undergrad and I have my master's degree. In hospitality. Um, and it wasn't until I, I was [00:43:00] at a, out of my undergrad program when I went to work for Hilton in Times Square, when at that time I thought I was going to work for Hilton, right? 'cause Hilton's on, on the building.
Um, but Sunstone at that time wrote my checks and. It was confusing to me. Um, and I think at the time and then, and then transferred to interstate, who managed it? So that opened my eyes to wait a minute. There's so much more to the hotel industry than just going to be a gm, right? Because I was naive in undergrad.
I was like, everyone wants to be a gm, but there's so much more to it, right? And so that business model opened my eyes and really. Made me think about how much students don't understand the business, right? They, it, it, it's, there's anywhere from just the investment side of, of hotels to development, like what Steve has did for a long time.
The architecture side, the design side, [00:44:00] franchising management, asset management. There, there, You know, when you. When you work in, in, at a brand managing the brand and brand sales. And so all this stuff was just, I didn't know this going into school. And really that was my catalyst to be able to try to teach others that there's so much in this industry that, that you can do.
You don't have to just aspire to be a general manager. Um, so that's, that's what caused me to do it. Uh, I wanted to do it for a long time. Uh, it was just really. When's the right program that fit, that fit my schedule, that fit what they were looking for? Um, and it was, it, it, there was a connection about three or four years ago that's me to do it.
Dan 2: Yeah, I do. It is amazing. Like if I'm at a dinner party or a cocktail party and people are like, oh, what do you do? I'm in finance. I'm in finance, I'm in finance. I'm in finance. What I, I furnish hotels. Everyone's like, wait, uh. Is Marriott your biggest customer? I'm like, well, like they're a brand, but like, there's so many different [00:45:00] levels and striations and it's really con, I don't know really how to explain it.
There's owners, there's all these other consultants and um, it's just, and people wind up being more fascinated that I wake up every day and figure out how to sell furniture, that they're just amazed by that. So it's like I'm, uh, I'm Al Bundy or something, but just instead of shoes, it's furniture. Um. I love that show.
Um, I love what I do, don't get me wrong, but if someone were going down this hospitality track, what's something that you would recommend that they do or try? If they're interested in getting into development or asset management?
Walter 2: Yeah, because look, you can look at a hotel. You can stay in a hotel and say, I really, I really like hotels, so it'd be fun to work in them.
I I think it's, it's taking, and this is really hard when you're younger studying, but I think it's really taking a, a, a look at what is it you enjoy doing. So for me, [00:46:00] dad, so I thought I wanted to be a gm.
And when I went and, and, and really what caused me not to want to do it, I took an internship at Disney World. Um, and at that time I, I worked, if you've ever been a hotel called Coronado Springs.
I don't know what it's like now, but they put you, they dressed you like a Spanish conquistador and they put you in a, in a, in their costume.
And I, I looked at myself, I'm like, this is what I went to school for. Right. That, so I went home and I, I I, I worked for Hilton in New York and
the Hilton, New York,
well that was the Hilton Times Square. I also worked at the Hilton Midtown
and that's where I really thought, like, I love hotels. I love it. I hated working overnight shifts when I was 21, 22 years old on a Friday and Saturday.
I hated it. So I say that to you because I think for me what was important was having a norm, a normalized schedule, right? Uh, a Monday through Friday job. I'm not gonna say nine to five because that's [00:47:00] not really how it works out, but I wanted weekends and holidays off. And if you're pursuing, if you're working in a hotel, that's very unlikely to happen. That was important to me. Everyone's gonna have their own, You know, and, and, um, I'll also say as you rise in the hotel business, there's a lot of money to be had when you start out in the hotel business. There isn't a lot of money to be had. And so I think, look, having a long-term perspective of what's important to you, um, you, and again, for me, it wasn't all about the money, it was more schedule.
Uh, but, and then finding out where strengths are. So if you really are. If you enjoy math, you enjoy the finance. If you enjoy the strategy, there's an area for you in the business. It just might not be working in a hotel. If you like caring for people and managing people and caring for guests, hotel operations is perfect for you.
So it's gonna vary by, it's gonna vary by person, but I would just have, I would just [00:48:00] advice, give advice to your, your, your audience to look at all avenues of the industry and, and not just silo into one.
Dan 2: But I'll also say having just arrived at a hotel at three 30 in the morning and then had to get up at seven for a meeting, and the same person checked me in at three 30 and was there at seven. I was like, wow, you've been here all night? And they're like, yeah, I love it. This is my jam. And that's what's so cool.
Every, everyone can find what they really like doing and get invol get in with their own circadian rhythm. Um, I personally like having my weekends to myself. It's really important for my family. I travel so much, um, just opening hotels everywhere, but. I think something can be said to that commercial or contract side of the business or the development side of the business.
'cause nothing is ever really nine to five, but there is some normalcy that you can plan and, and develop a really good life around.
Walter 2: Exactly right.
Dan 2: [00:49:00] so as you look forward, I know you guys have a lot in the pipeline and you're talking to so many cities and municipalities and universities, like what? What are you most excited about from what you see on your, on your hotel development side of the world?
Walter 2: it's exciting to see. How excited cities are for this infrastructure. So, so many times the story is we've, we've been trying to do this for 20 years. We've called five different groups to come help us and they can't get it done. So to see a project actually come to fruition is what I'm looking for the most.
Because you've been working with these cities for so long to plan it to, to, to. Plan the finance side of it, but financing side of it. I went to one of our cities, uh, just last week, and the city has a, the, the site is a, is a. Uh, direct view of the, of the state capitol, and they're gonna do a rooftop bar there.
And just, so just thinking about, wow, that's gonna be incredible when it opens. And just seeing the excitement of the people and seeing and truly envisioning what [00:50:00] it's gonna do for that community, uh, that gets me excited. Uh, and again, we, we are a small company, so we work. Our, all of our hands are in all of the pots, so we're all involved in, in every aspect of it.
So, um, it's a labor of love. We, we work hard at it every day. So to see that finally be realized, um, that's exciting for me.
Dan 2: Awesome. If someone wanted to learn more about Garfield Public Private, if there's a, if there's a city manager or a select person or a mayor somewhere that wants to learn more, um, or someone that wants to get in touch with you to asset manage some of their properties, what's a good way for them to get in touch?
Walter 2: Yeah, I'd appreciate that. So you go to our website, garfield public private.com, that'll show everything that we've done. Uh, and then if it's something that, that, um, a listener wants to talk more about, they can find me on LinkedIn, uh, or they can send me an email direct, and I'd be happy to to engage in that conversation.
Dan 2: Awesome. Walter, I appreciate you so much and I'd love finishing up the week on the with these, and thank you for lightening, uh, educating me on this [00:51:00] awesome Friday.
Walter 2: Yeah. Dan, thanks for having me. I really enjoyed the conversation.
Dan 2: Thank you, and also to our listeners. Without you, we wouldn't be here talking to Walter and learning about asset management and public private ventures.
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