The Exchanges, every show

Q What's one thing most people don't know about you that you find interesting?

A I said I love basketball. I was so fortunate in high school. I played with two future NBA players and actually played on the fourth ranked team in the country where we got to play against all sorts of people that played in the NBA over the last decade or two. It was this amazing experience because it was one of these times where not only was it so fun and my big passion, but I learned about teamwork and leading and Then also how to take a back seat, and the experience of being a part of something great. I still look back on that, and I'm so lucky and fortunate to be a part of that experience. There's one more I should probably say. It was fun talking about my professional accomplishments, but actually I'm far from the most successful person in my house. My wife is an amazing author, Christina Alger. She's written four best-selling books, and they are phenomenal. If you're going to start with one, I would start with The Banker's Wife, but What really makes all of this possible is her and her support. She's really the most talented in the family.

AI assessment note: “I played with two future NBA players and actually played on the fourth ranked team”

Q How did you think about layering in credit as the next leg of the stool?

A Residential broadened us from a hotel investment firm to a real estate investment firm, which was a bit of an identity change. Leaning into a core competency felt much easier. The interesting thing was most real estate investors would look back, and when interest rates rose in the middle of 22, you could look at your credit returns, and you could say, wow, Credit's more interesting than equity. We saw that. We saw that close to four years ago. We also made the decision that we couldn't be transient players in this space, so we decided to sit it out. Years and years passed. We kept seeing it. Our lenders were showing up in different ways. We saw the holes that existed, and we kept thinking it was really interesting. We saw this huge opportunity set for years. What was the catalyst to doing it was this guy, Christopher Jordan, who Was the most prolific hotel lender over the last couple of decades. He ran and built Wells Fargo's hotel hospitality lending unit, as well as many other things over a couple of decades. He retired from Wells in 22. We had created a great relationship over 15 years of working together. He was in New York, our office, saying, I might try to do something. I'm getting a lot of calls about this interesting space, and I said, look, I don't think the things you're thinking about are interesting. I don't know if we can stand this up, but if you wanted to, the c…

AI assessment note: “What was the catalyst to doing it was this guy, Christopher Jordan”

Q Why don't you take me back to the early upbringing influences that led into the path you're on today?

A I grew up in Los Angeles, only child. I described myself as a late bloomer. I was a shy kid on the weekends. I used to spend time at home with my parents, play cards, mainly gin and hearts, which I am now trying to impart on my kids today. I loved basketball, which was my focus for most of my upbringing, more than school or anything else. I was entering my senior year of high school, which was an important year for recruiting, and I got injured, which was tough at the time, but in hindsight, it was probably one of the most pivotal moments in my life because I started focusing on academics more. My friend circles changed a bit. Even the music I started listening to changed I ended up going to University of Michigan, transferring into the business school after that. Fortunate to get a job doing investment banking at Goldman Sachs after college. Came back to basketball again. I got two job offers out of school. It was both at Goldman, one for investment banking into the TMT group, so the technology media group, and the other into real estate. I didn't know much about either, but the guy that was recruiting me into the real estate group said, I really want you to work here. I work on all of our hotels and gaming companies. We'll play basketball on the weekends. You'll have a great experience. At that age, I had a sense that mentorship was always important, not just what you're lear…

AI assessment note: “I grew up in Los Angeles, only child... pivotal moments in my life”

Q When you were assessing Nicole as a talent to run this strategy, what did you look for to determine that she would be exceptional?

A When I met her, I thought she was a great investor. I had this gut instinct to it. I went and I spoke to one of our investors about it and said, think about starting this residential investment strategy. And I said, her track record's extraordinary. And they said, you gotta be really careful because everyone's track record in residential is extraordinary for the last decade. I said, ah, that's a good point. If you dissect the track record and figure out how Nicole's track record was created, what was so interesting about it was she didn't just invest in multifamily and ride the cycle for 10 years. She was pivoting in and out of these subsectors in many cases far too early because the risk reward became more interesting in other places. That logic about thematic investing, about risk reward, where the best risk return is between this and the pivot, to me, is one of the hardest things to do because it's easy to say, hey, that worked. Let's just rinse, repeat, and do it again. It's harder to say, hey, we made our money here. This now doesn't feel as good as this other thing, and how are you doing it? That is what stood out, was how well she could articulate how she pivoted across subsectors over Close to a fifteen-year period where if you made any mistakes, it was getting out of things too early.

AI assessment note: “how well she could articulate how she pivoted across subsectors”

Q Where does art and taste come into the process of either identifying or improving assets in hotels?

A Hotels are a very people-oriented business. A lot of what you create has to resonate with the guests that you have. That is one of the harder things to do. I go back to being a real estate investor that invests in hotels. Generally, we never want to make the core business plan or returns that we're banking on dependent on us doing an exceptional job with design or food and beverage outcomes or outperforming the market. We always want to do that. But we want that to be our upside. Where that's really important is that if you do a fabulous job, you should make a great return. If you do a good job, you should make your base case. We spend a tremendous amount of time and effort in the planning of our renovations, our business plans for the assets, trying to figure out a story and a through line and what we're trying to create. And that's very different. When we own a five-star hotel in Cape Cod, and we're renovating it, and it wants to be really quintessential New England beach resort, it's very different than when we're buying a hotel out of bankruptcy in Beverly Hills, and it's got to be five-star luxury for the highest-end consumers in the country. Making sure that we're assembling the right teams is critical to the success of the hotel. We want our returns to be based on us doing a professional job, and we want outsized performance for doing An exceptional job because even as m…

AI assessment note: “We always want to do that. But we want that to be our upside.”

Q As you look out, you're starting to build this credit platform. What do you hope EOS becomes in the next 10 years?

A I've always wanted to be a part of something that makes an impact. I'm excited for the relationships that we've built with our investors over the years with the ways that we're becoming more and more significant in the industries than just being the occasional buyer and seller of assets. We now have almost 7000 employees at our hotels. We impact a lot of people. You take great responsibility for the people that entrust us with their livelihoods. What I hope EOS becomes Is a premium provider of whatever we offer, whether it's investment opportunities in equity and residential and hotels, whether it's credit opportunities, whether it's property management, and we do it in a way that is forward thinking and innovative that generally leaves the areas that we touch and the people that we touch feeling better than before we were there.

AI assessment note: “What I hope EOS becomes Is a premium provider of whatever we offer”

Q Once you've identified a market that looks attractive, how do you go about deciding what type of hotel you'd like to invest in in that market?

A We have four core pillars of how we're investing. We like to say interesting supply demand dynamics over the short to medium term. We want to buy non-commoditized assets. Assets that people will pay more to stay at, not just shop you for the cheapest rate on whatever channel they can do that. Third, we always like to have diversified demand drivers. There's really three forms of business that stay at hotels and how they're segmented. One is group business. Conferences, meetings, weddings, anything that's over 10 room nights. The second is business transient, and the third is leisure. We never want to put too much leverage on assets where we're forced to make bad asset decisions because of financial pressure. On the first three pillars, while we always look to figure out how we can expand what we're doing, If you really stick to those three dynamics, it's been a pretty defensive way to invest over the last 20 years with a lot of asymmetry to the upside.

AI assessment note: “We want to buy non-commoditized assets. Assets that people will pay more to stay at”

Q What does a typical plan look like once you've bought an asset that the operations team is trying to improve upon?

A There's two main buckets that we would put a business plan into. One would be physical renovation. If we're transforming an asset, that could be from redoing a lobby, changing the appeal of it, redoing the rooms, adding real amenities. Some of those renovations can be anywhere from five million dollars to seventy million dollars. You can have a totally different impact, create real revenue, enhance your business, or just redo what's existing there. The other side of it is what we would call operational business plan, so management related. And that can either be strategies around improving revenues or strategies around decreasing costs. In some cases, you could increase costs if you want to increase revenues because you offer more services, but it falls into operational or capital buckets. That is what we spend a tremendous amount of time on when we are buying an asset, because we're figuring out what we think an existing asset can do, and then we're figuring out what the return is on Any capital that we spend or any initiatives that we want to take to rent. We will generally act quickly, so we will try to have our entire plan obviously figured out before we commit to doing an investment, but we're working to implement those changes on the day that we take over an asset.

AI assessment note: “There's two main buckets that we would put a business plan into.”

Q On the other side, in the frameworks you developed, highly data-driven to try to get at the right markets to be in, how have you thought about using AI to improve that analysis?

A I'd like to say we're doing a lot with it right now, but we're talking about it. We're close to hopefully doing something with it. Now that we've been doing this for a long time and we have a lot of data, both in terms of properties when we look to buy them in our files, as well as data coming in every single day in terms of booking trends, we are really focused on figuring out how to identify trends quicker and Seeing what more holistically we can do to isolate what's actually meaningful. When I think about the framework that we created 20 years ago now, in the next couple years, that will be vastly improved because we're gonna be able to look and see what markets look similar to these seven large resorts that we're seeing. I think it's gonna broaden our ability to invest What I'm also hopeful for is that we'll be able to see if we've made mistakes, where have we made the mistakes in the past. Going into COVID, or at least now, we are one of the largest owners of regional resorts, drive-to resorts in the country. For a long time, we thought that that segment of the market really was just Florida and California. It wasn't till 2019 when we bought a big, great property in Myrtle Beach, South Carolina, that we realized that the same dynamics exist in other coastal markets that are within three hour drive to distances. And so once we saw Myrtle, we said, hey, where else is this tr…

AI assessment note: “I'd like to say we're doing a lot with it right now, but we're talking about it.”

Q How do you think about an existing management team, how important that is to one of your investment thesis?

A One of the things I do love about this industry is it's full of great people. You've got the people you're talking about in terms of existing management teams are the manager's assets, which are not investors, but they are hospitality professionals. The strength of hospitality professionals is quite diverse. You could have a great business person running a hotel who understands ROI and trade offs, and you could have a great guest ambassador who attracts the most loyal guests that will pay more because he or she's been there for 20 years. The quality of the team prior to our buying the asset is not as important as the quality of the team that would be in there when we're owning the asset. We've bought hotels where there's been terrific teams that we hope we can help supercharge. Let them do their thing. There have been great teams where we've said, hey, they're great at this, but we can supplement with these other areas. And there's been assets where we have to make management changes to take the asset to where we want it to be. It's much less about the existing team and much more about the team that will be there when we own it. Anytime you're taking an existing team and changing it, there's more risk. So that would be more of a turnaround or a transformation of a property, and you'd factor that into the price and the returns that you're going to hopefully get.

AI assessment note: “The quality of the team prior to our buying the asset is not as important”

Q How do you think about creating scale in the business? If you're going in with an operating team asset by asset,

A I never thought that we would be as big as we are today. We own 45 hotels, mainly resort, and then I'd call it higher-end urban assets. We have an operating platform that now manages about 60 assets, so they manage our 45, and then very selectively for other sophisticated owners in the business, we'll manage four. When I started the business, I thought we would be Small hotel investment firm, we'd buy a couple assets, we'd add value, we'd sell them, probably never get to be more than 10. When COVID happened and we were so directionally invested in these drive to resort assets, the industry was on its back and we were doing quite well. Because we had this unique pipeline to execute on, the business scaled quickly in a way that wasn't anticipated. The real magic of that moment was that unbelievable talent started to join the firm. Others in the industry took notice and wanted to work with us. So the business has grown both on the operating side and on the investment side to now where we're one of the larger owners of hotels in the country, also one of the larger managers of hotels in the country. Going back to the investment framework, I think in six of the nine years that we've been around, We've made one or zero investments. When we have deep conviction, we move fast and we'll invest pretty heavily, but over that nine-year period, more times than not, it has not been a great in…

AI assessment note: “Because we had this unique pipeline to execute on, the business scaled quickly”

Q What are you most excited about when you look at the investment landscape today?

A I'm really excited. There is so much noise out there. I have never in my career seen assets and markets and types of travel perform in a less coordinated way. There is going to be incredible opportunity here As people make decisions about disposing of assets, where there'll be a lot of people that can't figure out what markets they should be investing in, and that's going to create great opportunity. For so long, a good market grew at six percent a year, and a bad market grew at two percent a year. Now, you have markets that are going in totally different directions, and some markets within those markets that are going in totally different directions, so it's never been harder to comp to the like sale. You can't really just come to the light scale. So I think there's going to be great buying opportunities, but we're finally starting to see, which is exciting, is it banks are starting to make people deal with problems or sellers are now capitulating a bit. There's going to be a much more active investment environment over the next couple of years.

AI assessment note: “There is going to be incredible opportunity here As people make decisions about disposing of assets”

Q Residential real estate is a big market. I'm curious, when you made the decision with Nicole to lean into that as a business, how did you decide to go about it in such a way that it would make the whole a better organization?

A I had to ask myself that during that process. The trends that we were seeing out there, broadly speaking, were the large investment managers get bigger. We were seeing it getting harder for people to launch small investment businesses. We were seeing a fair amount of frustration mounting from people that worked at some of these large asset managers as the business models were changing. We started getting calls from people outside of hotels that said, hey, could we ever start something together? You did it. I don't want to do it on my own, but could we do something together? So we spoke with our initial investors and said, hey, would you ever back us in a non-hotel And because we had earned so much trust surviving late cycle and COVID, they said, well, yeah, we have a lot of trust. If it's the right person and strategy, we back you in doing this. I went out and tried to meet as many people as I could in my network, outside of my network that we could potentially do something with. I met Nicole. What was interesting is that the edge in the hotel side is largely driven by our vertical integration. The way Nicole invests is not a vertically integrated platform. But by having a broad mandate to trade in and out of residential subsectors as the risk reward becomes more interesting in those different areas. It was a gut check moment of, well, what is EOS? Is it a vertically integrated…

AI assessment note: “to the extent we're ever going to grow this business and we're going to set up different investment platforms”

Q What are the signposts of where supply and demand leads to an occupancy level where you think a particular hotel will have pricing power in the future?

A What's interesting about these charts when we put them together, every market and sub-market actually behaves differently. It's a different level for every single market. That has to do with seasonality. It has to do with how much supply exists in a market. What's really interesting is that almost every one of these markets has a demarcating line, or if you do a scatter plot for the last 40 years, where above and below a certain threshold, there is a pronounced difference of ability to drive rate. It's not even close. It's below 72% occupancy, you have no pricing power, and above 72% occupancy, you might be able to push rate on average five percent. We oftentimes will find ourselves in a situation where people will say, oh gosh, why are you buying in this market? You have to believe a lot of growth. You look at it and you say, yeah, because there's going to be a lot more coming. We'll also find ourselves in a position where people say, wait, why aren't you buying hotels here? They're so cheap. We say, well, they're not cheap enough. That's the really interesting thing that comes about the industry and the markets. We're always checking what we're doing and trying to see what's coming next or what's going to change this. What gives me great comfort is that over almost 25 years of investing in hotels through some pretty dramatic changes, including COVID, these trend lines continu…

AI assessment note: “almost every one of these markets has a demarcating line... above and below a certain threshold”