Should You Operate a Branded Hotel or Go Independent? | Neil Shah E6

With over 100,000 hotels in the United States, approximately 70% operate as branded or flagged hotels. But why is that? If you’re considering purchasing a hotel and debating between going independent or affiliating with a recognized brand, this episode is a must-listen.

We’re joined by hospitality industry expert Neil Shah, who brings over 25 years of experience in hotel investing, with 13 hotels and 471 units purchased under his belt. Neil has worked with six different hotel franchises, including well-known names like Best Western, Hampton Inn, and Howard Johnson. Together, we explore the advantages and trade-offs of operating as a branded hotel versus staying independent.

From understanding brand support and marketing power to evaluating franchise fees and operational restrictions, this episode is packed with actionable insights to help you make an informed decision for your next hotel investment.

Tune in for invaluable takeaways and expert advice. Let’s dive in!

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https://www.inntechhospitality.com

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Transcript

Michael Russell 0:00

If you're considering purchasing a hotel as an investment and you're wondering whether or not you should operate it independently or go with the branded or flagged route, then this is the episode for you. Our guest is Neil Schaut. He's an expert in the hospitality industry. He's got over 25 years experience investing in hotels with over 13 hotels and a total of 471 units purchased. He's got experience with six different hotel franchises, including some common ones like the Best Western, the Hampton Inn, the Howard Johnson, and several others. So in this episode, we're going to talk with Neil about what are the advantages and what are the trade-offs of operating your hotel as a branded or a flagged chain. This was an awesome episode, so many good takeaways. So you're really going to enjoy this. Let's dive in. Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate.

Speaker 1 1:03

Get in the game.

Michael Russell 1:18

Thanks for inviting me. I'm so happy to be here. Nathan and I were just talking, and we when we decided that we were going to start this podcast, you were one of the first people that we recognized that we we wanted to invite on the show. So, you know, you are an extremely successful hotelier. You've uh been in the game now for, I believe, more than 20 years, and you've got a lot of valuable information that I think our listeners are really going to benefit from. And so let's start right at right off the bat. I want to ask you, how many keys do you own? How many doors? How many keys, whatever you want to call it, how many units do you own?

Neil Shah 1:54

Um, 471 total range. Um 10 hotels currently.

Nathan St Cyr 2:01

Let's go.

Michael Russell 2:03

Let's go, Neil. Dang, 471. That is a lot. Now, and how many properties did you say? Currently 10. Well, and I know you've got a couple more that are spinning. Is that correct?

Neil Shah 2:14

That is correct. Yeah. One is in the in the in contract right now. Yeah.

Nathan St Cyr 2:20

This is we don't have the opportunity. Usually, when we're speaking with guests, they're in the game, they're in the but they've they've not gone for full circle. You have also gone full circle on hotels. Is that correct?

Neil Shah 2:36

That is correct, yeah. Um we have purchased hotels, we have refinanced hotels, we have sold them. Um, I have done lease to purchase option. Um, yeah, uh pretty much everything you can renovations, design, branding, uh, independent hotels, boutiques, soft brands, franchised hotels, rebranding of the from one brand to the other. So, yeah, all of those things we have done over the last over 20 years.

Michael Russell 3:05

Awesome. So, where are most of these hotels located?

Neil Shah 3:09

So we have six um Fain Sedona, two in Tucson, and two in California.

Michael Russell 3:16

Wow. So, what I really am excited about digging into is I'd like to really dive in. Like, what is it about branded hotels that you've gravitated towards as opposed to predominantly going the independent route? Um, what are some of the advantages of branded hotels?

Neil Shah 3:30

So I'll start kind of from the beginning why and how I ended up there. I started working in an independent hotel when I joined the hotel industry. I didn't start um at a branded hotel. But eventually, after the first job at a hotel that was independent in Anaheim, California, then I got my proper general manager position at a Days Inn in Flagstaff, Arizona. That was my first branded hotel job. And this was 2000 and this was 2000. So during that time, nobody talked about independent boutique hotels. In those days, independent is independent motels, right? Um, so there was not a lot of pride in owning independent hotels. The pride was owning nice branded properties, right? And I was just a GM, so I'm just learning how to operate hotels, you know, how the company that I work for manage and oversee multiple properties, what kind of system supports and training they provide, so on and so forth. So I was doing that, and then eventually, of course, because how things were in those days, my first investment was also in a branded hotel. It was the best western in Flagstaff. So, because how my journey happened on its own, I ended up in the branded hotel to begin with, and then I learned everything about the business in Branded Hotel. And then years go by, and then we stumbled upon a deal in Sedona. The first deal was soft brand, and that's when my eyes were like, Whoa, this is amazing. I love this. Keep in mind, I still have not done or owned independent property yet. My very first job when I was completely new to this country and to this industry was independent hotel. But this getting into soft brand hotel kind of made me realize it this is the best of both worlds. I am not fully branded, I'm not fully independent, but I am in between. I have a lot of freedom.

Nathan St Cyr 5:41

This was can we call it time out there, Neil? Because can you describe like what specifically is the difference between when you say branded and then you say soft brand, what are what what makes something a full brand or a soft brand? I'm just wondering what what differentiates those two?

Neil Shah 6:01

Yeah, so branded or franchised hotel is basically you have a building and you are putting a brand on it, right? Um what you get with that is a brand recognition and trust from the guests that are traveling that might be considering uh where to stay, right? So think about Hampton Inns, Comfort Suites, so on and so forth, Marriott's Hilton's. When somebody chooses those hotels, they know what to expect, right? They know their cleanliness standards, they pretty much even sometimes know how the hotel is laid out. You walk in, there's a lobby, they probably will know where the breakfast room is, they know where the fitness room would be, so on and so forth, right? So it gives them the little bit of a comfort and confidence in uh kind of getting a good stay for the money, right? Uh the other benefit the owners would have is it's a proven model, right? If somebody that is a non-hotelier coming into business, when you buy a branded hotel, you have so much support. It's a proven model. So it works in so many different ways. One, um because of their support, you know they're gonna help you how to run your hotel in a sense. They're not gonna come and tell you how to run it, but they give you some guidelines, right? Uh, because it's a branded hotel, the lenders or the banks, they also feel more comfortable or they feel it's a less risky to finance these deals because backing from the brand. The brands have been around for decades, right? So it's not like you're just opening a brand new building or buying a building where there's no brand, there's no history, right? They have very a lot of confidence in financing those deals. So you end up getting better terms, you might even put less money down, which increases your return, right? Yeah. Um, the other thing that also helps is um most, if not all, brands, they have loyalty members, millions and millions of loyalty members. So as a hotel that is branded, you can rely on some of that business, right? If a brand has 15 million or 50 million uh members that are loyal to the brand, they don't always stay at the brand, but you know there's a pool of guests that you are going to count on, right? So much of a business is going to come from those guests because they are loyal to the brand. So that kind of helps you generate more business. Um, the other thing is the brands are also connected nationally and globally to a lot of travel agencies, wholesalers, large uh institutions, right? They have direct connection with those companies. So when, let's say, for example, Caterpillar or Microsoft or Google, when their employees travel for business, there are agreements between the brand and those companies where sometimes the employees are required to stay at certain brands, or they are given um guidance as to you pick between these brands, right? Once again, what does that do? That gives the owner a little more peace of mind that I'm going to get that business because I'm affiliated with this brand, and the brand is now connected to all these different channels, right? If it's an independent property, you have to do all this stuff. And nobody's gonna talk to you if you call Microsoft. They're like, who are you? You don't even know who to call, by the way, right? So that is another benefit of being a branded property.

Nathan St Cyr 9:26

Um as a franchise host. Okay, and then what so and Neil, so what's the this is awesome. What is the cost? Like, what's the premium then that you pay to have that brand to fly that flag?

Neil Shah 9:44

Yeah, so the cost comes in a variety of ways, right? So when you have an independent property and you want to put a brand, right? So you talk to them, and there's some there's going to be uh application fee which could vary from $25,000 to $75,000. Then they will give you a list of things, which is called a PIP property improvement plan. They will give a list of things you have to do to meet that brand's standards in terms of what they want in the rooms, in the lobby, in the breakfast room, exteriors of property, all that stuff. Once all that stuff is done, you are now part of the brand. Uh, then you end up paying anywhere from 10 to 15 percent uh off the revenue as fees to be associated with those brands, with that brand. Um that seems like a martial.

Michael Russell 10:36

10 to 15 percent seems pretty steep. Is that you know, when you're when you're running your your calculations as far as um you know doing a pro forma on whether an investment is gonna work out and you pencil in 10 to 15 percent of fees, do you also then have to include maybe 10 to 15 percent fees for like let's say OTAs, online travel agencies, Expedia and such that are gonna be in addition to that?

Neil Shah 11:01

Yes.

Nathan St Cyr 11:03

That's so I would assume when you're weighing this. Yeah, I assume when you're weighing this out, then you're really looking at okay, that 10 to 15 percent branded fee, what does that do to my revenue? What does it do to my ADR? And what does it do to my occupancy? Because ultimately, if you run that and you know that or you know, you're gonna get this additional occupancy. You're gonna be able to drive based on that flag, you're gonna be able to drive an ADR that's so in your, you probably have a pretty good feel for, hey, if I go and and and fly the Marriott flag here versus if I'm on my own, I'm gonna minimize a bunch of risk. And I know I'm probably gonna generate this additional amount of revenue to make up for that cost. And that's what that's what you're banking on, I'm I'm assuming.

Neil Shah 11:54

That is totally correct. Yes. So look, the fact remains there are more branded properties than independent properties. If the branded property structure or the fees didn't work, it would not be the case. So I'm not trying to reinvent the wheel here. It's just how it works. Those are the fees. And as Nate mentioned, yes, there are benefits of being associated with a franchise because you get much more business. Um, you could probably push your rates higher, right? Uh, you also have peace of mind that you are going to do a certain amount of revenue because you are affiliated with the brand. Um, so yeah, those are there are some of the some give and takes. And then the other there are there's one more benefit. Because you're part of a large uh brand, they might have thousands of hotels under their under their umbrella. Uh they also negotiate bulk purchase agreements with different suppliers. So a lot of times your operating costs could be more a little lower than it might be as an independent property, right? Uh so yeah, there are some other intrinsic other benefits of being part of the brand as well.

Michael Russell 13:00

Yeah, no, this is really insightful information because you know, at first take being an outsider, you know, I focus on the fees, right? I just gravitate towards, oh my gosh, it's an expense that I want to avoid. But to Nathan's point, to your point, well, if you look at overall the advantages in terms of potential for increased revenue, but not only that, but credibility. Right now, financing hospitality is incredibly difficult. And when you were speaking towards um not only towards lending, right, but even specifically with like training and processes and the value of having proven systems in place that work, there is a lot of room for error. So if you're new to this business and you don't have a you know a tracker, if you don't have years of experience, it is justifiable for a bank to look at you and go, wow, this is added risk. But when you tag on a um you tack on a brand with you know these PIP requirements that you've communicated, those have value because what the bank knows is, okay, if they're going with a brand, then they're gonna implement these capec expenses accordingly. Yep. They're gonna have training modules, they're gonna have processes in place, they're gonna have a proven um method to be able to run this business effectively. And so, you know, that that franchise model, in a sense, it's proven with without, you know, not just in hospitality, but for all these different businesses, you know, when you look at like the restaurant model, right? You know, restaurants have such a high um ratio of failure, but there's a lot of reasons why people join a franchise and pay these fees because of the um added value of uh just reliability, credibility. And then to your point, that the lending piece to me was just eye-opening because I didn't even really think about that. But going through it as an independent operator, we know firsthand that it is challenging, particularly when you have to explain a business model that banks aren't even really familiar with.

Nathan St Cyr 14:53

Yeah, I mean, when I think about what's the what's the interest expense cost of a one-point difference on a six million dollar loan? And then you look at, well, by by applying that, and then I'm you know, I'm going through and I'm looking, oh, well, what is the percentage of if I'm I'm just you saying Marriott because they're like the biggest brand, but if we look at, well, what does that deliver of direct bookings of of clients that are booking through Marriott versus going on Expedia or Booking.com, they already have a map. So you start to kind of add up in each one of these little areas, plus ADR plus occupancy. And I can see where that that really that really could make sense.

Neil Shah 15:34

I'll add a couple more things. So think about when you talk about lending, uh, you might get better interest rate, but you might also be able to acquire this property for lower down payment. Think about putting 20% down versus 30% down on a $10 million deal. What did that just do to your return profile? Instead of so at a at a $10 million deal, if you had to put 30% down and you and I both know, if it's an independent property, the bank is going to want you to put 30 to 35% down, no doubt. So instead of putting $3 million down, you can probably do this deal for $2 million down. Right? If your revenue profile and financials remain somewhat similar, right? Now your return is based off of $2 million instead of three. Yeah. Right? So I mean, these are big levers somebody can pull, right? So yeah, that that's the the that's how the uh franchise model works. And I want to say a couple of things. There are a lot of things I like, there are a lot of things I don't like about franchise model. One thing that is lately been bothering me and a lot of industry leaders is you know, when they charge whatever, you know, 8 to 12% fee uh on the revenue, I feel like when the business is coming from OTA channels, we are already paying them anywhere from 15 to 20% commission, right?

Speaker 1 17:00

Yeah.

Neil Shah 17:01

And only reason the brand is getting their revenue is because of the connection. They are not spending any or very little amount of dollars to generate those revenues. I feel like they either should not charge their franchise fee on the OTA revenues because it's double dipping. So as a hotel, suddenly $100 room rate, I'm paying $20 OTA fees, and I'm paying another, let's say 10% franchise fee, right? And then all your other operational expenses, it's a pretty big chunk that um should not be paid to the brands. And I don't want to go into this rabbit hole, but that is one thing that I've been thinking about for the last you know couple of years, and there are a lot of talks about what can be done about it in the industry.

Nathan St Cyr 17:50

Understood.

Neil Shah 17:51

Yeah.

Nathan St Cyr 17:52

What would the what would what would other cons be? Disadvantages?

Neil Shah 17:57

I mean, there are they're not disadvantages, it's just things could be different. You know, there are implementation of certain requirements that may not be uh feasible for some properties, right? They're expectations from the hotels, things like things like that. Um sometimes they have What about the PIP requirements, Neil?

Michael Russell 18:19

Can can you talk about that a little bit? I know I know that you mentioned initially that you know there's some upfront cost, right, when you start um when you sign the contract with the brand and you got to bring it up to the to the level that they they require, but then there's ongoing PIP, right? That every few years, every so often you need to replace everything. How does that work?

Neil Shah 18:37

So it's not ongoing, but like let's say you bought a property in 2023 and you spent, let's say, a million dollars on your PIP, right? Property improvement plan. You met all the requirements, they're not gonna come to you for another five to seven years with a newer design, newer requirements, right? There might be a few things here and there. Um, they are also trying to keep up with industry trends and innovations and new designs and trends, right? So there might be a few things, uh, but they're not gonna come to you with that kind of large pip items for at least five to seven years. Um that's probably fair to say. Yeah. So it's not ongoing that kind of money.

Michael Russell 19:19

Let's say you got a plan for that, and you know, you said a million dollars, so I assume some of these are pretty extensive, uh, either remodels or you know, you gotta purchase furniture and all this, but do they offer any type of financing through through the brand, or do you have to go to a bank, or do you just have to budget for it ahead of time?

Neil Shah 19:38

Uh, most brands do not offer any financing. So either you bring your own um funding to that, you can go to the bank. As part of the loan, you couldn't have renovation financed. Uh, some people go to a separate lender and do a separate note for FFE or renovations, things like that. Sometimes when you are putting a brand, some brands actually offer key money. Key money is basically what they do is they give you, let's say, for I was just throw a random number here. They might say, I'll give you 4,000 a room and it's an 80-room property, right? So they'll give you $320,000 up front, or when you finish the pip. So what they're saying is we'll give you this money for you to accomplish your pip, but in return, they will make you sign a longer contract without any exit windows. So then they got you for let's say 10 years, for example.

Michael Russell 20:37

Yeah. So it's basically that we're 10 years. I went to go get an iPhone and they tried to do the same thing. Hey, the iPhone's free, but you can grab this phone for the rest of your life.

Nathan St Cyr 20:50

Okay, so uh now I want I'm wondering about your freedom. Let's let's say you choose to go that brand full branded route, right? Um what do you have freedom to you know go out and hire influencers for your social media, for your direct booking, or is it limited to do they really restrict and limit your freedom in what you can do?

Neil Shah 21:14

No, you can do that all that stuff. Um they're not gonna stop you from doing that, however, influential marketing, social media marketing should be used at a specific type of property. I've been spending a lot of time over the last few months to learn about all this new stuff. People are, yeah, we're learning from all these industry leaders and micro resorts and landscape hotels, wellness, all that good stuff, right? Amazing stuff. But I'm realizing it's not for every hotel. The hotels have to have some unique characteristic to go out there on social media, one, to justify the spend. You can't go out and spend $5,000 a month or whatever number that justifies that individual property. You're not gonna get the return because you're part of a brand. They're also doing some marketing on your behalf, right? Plus, I don't think a branded hotel can have such unique characteristics as unique stage in a sense. It's it's a it's a cookie-cutter botch. You're not gonna have much more uniqueness to it than other boutiques, right? So for that reason, I don't think I would I would look at that. Um so uh what was the other question? I'm sorry.

Nathan St Cyr 22:30

So you're not bottom line is you're not you're not you're not restricted, but it's not it may not be beneficial too.

Neil Shah 22:36

Yeah, freedom-wise, you could have your own website. You can try to get generate more direct uh bookings, you can do Google Ads, you can do you can do all the social media, not social media, but um digital marketing, you can do all this stuff, but you have to weigh benefits for like cost versus benefit, right? What kind of ROI are you going to really generate by doing that?

Michael Russell 22:56

So, yeah. Well, let me let me piggyback on that a little bit here because you know, I'm looking online and there's quite a few of these branded hotels. I'll pick Motel 6, right? There's a Motel 6 for sale, it's X amount of money, and you know, you you you wonder, like, okay, well, what's the upside here? How do I improve this Motel 6? It's got the efficiencies in place, got the brand in place, got the operations, all that stuff's already in place. So I buy this thing, and then what do I do to improve it? And you know, you've mentioned to me uh privately, like, hey, there are a lot of things that you can do. You can improve operations and such. So look, can we dive into that a little bit? If if someone were to look at purchasing an existing branded hotel, motel, what have you, and they're trying to evaluate a way in which they can, you know, perform a value add or otherwise raise the income so that the property is worth more and ultimately sell it at you know at a profit, how do they do so?

Neil Shah 23:48

Uh I think it's um a couple of things. One, operational efficiencies, right? Just because it's branded doesn't mean it's run well. Just because it's branded doesn't mean they're doing a great job with their revenue management, right? Um, so the upside in those properties, you look at the financial, you can see what the market is doing because they're branded, you can easily get the star report, you know how property is performing against their competitive side as well as the market itself. If you see they're underperforming, utilize an upside. The second upside could be property may not have been well maintained. They may have not done renovations or any improvements in the last 10 years. So your upside is you buy this property at a discount, you do the renovations, bring it up to standards, make it nice, clean, comfortable, right? Welcoming. So that's one aspect. That automatic is gonna allow you to run higher occupancy and probably charge higher rates, right? Second is the property may not maybe mismanaged. They are not focused on operations as much as you might be. They might be out of state investors and they're running it just with a GM or whatever that may be, right? So there is another opportunity in improving operations, which should relate into controlling expenses. So now you control expenses, you have increased revenue, occupancy ADR, your NY has now increased, and now your valuation has gone up. So that's the upside. Second thing you can do is you can buy Motel 6. Uh, and you of course, when you do your due diligence, you find out what else can I do? What other brand can I put at this place? What if you take Motel 6 and put a comfort suite, for example, or a best western? It's a next higher tier brand. So once again, you do the renovations, you put a bet of brand, you are now going to automatically, well, nothing's automatic. You still have put time and effort, right? But you have high likeliness of bringing the revenues up and the valuation up for the property by doing that.

Michael Russell 25:50

Yeah. And you know, what you're describing all makes sense, that there's definitely always ways that an operator can improve the effective effectiveness of their operation. But also, too, I I've I've heard you mentioned that you know, people are really important. That, you know, leading a team that is gonna remain motivated and and you know provide guest satisfaction. Uh, can we dig into that a little bit? Like, how do you inspire your teams to continue to innovate and stay motivated, especially in an industry that is known for high turnover?

Neil Shah 26:23

Um, it is not an easy answer or easy solution. Um we all know since COVID, everybody, there's one common fabric in all the conversations, how hard it is to find employees. Find them and retain them. That's the biggest challenge. Um, I cannot tell you that all our properties are fully staffed with perfect employees. It's not. It's an it's an ongoing thing. We are constantly working on that. What we are trying to do is we are trying to create a good work environment. We are trying to offer them opportunities to learn and grow with us. Right? We want to treat them with respect. That's my basic thing is every everyone deserves respect. I don't care who I'm talking to. Right? So that's the what if the first thing. We want to treat them well. We want them to wake up every morning and want to come to work instead of wiggle, like, oh shit, I gotta go to work. That is not what I want. If that happens, either for me or for any employees, we need to walk away. They need to find a better job for their better life, and we need to find a better employees for our success, right? But if you can find a way to work with the team, give them an opportunity to grow with us, teach them more new things, right? Um, that's when, and it takes time. You know, when you hire somebody new, they are going to be loyal to you and they they don't understand what you are trying to do in the first week. It takes a few months for them to understand who you are, where you come from, what you're trying to accomplish. We want them to be part of um our vision, right? For example, if I'm doing evaluations, I ask my GMs their opinion. What do they think of what I'm visioning? Because at the end of the day, it's not about me. It's not about my GMs. It's about the guest. It doesn't matter if I like green color on my accent wall. Who cares what I like, right? What matters is what the guest is going to like, what the property is going to look like, right? What is it going to do to the guest satisfaction? But it is important to discuss this information with our GMs because they are the boots on the ground. They talk to the guest day in and day out. I don't. So they have more insight about the local area, about the individual property itself, and what the guests are looking for. So when you ask for their input, they feel like they are making a difference. So we try to do that in every possible situation we can. Um so some of these things are important to me. Um and it's been working. I mean, we have some employees that are amazing. We are very lucky to have them, and they have been with us for a long time.

Michael Russell 29:01

Yeah, I know that that's so good. And you know, Nathan has done an incredible job with our team. Uh, you know, he's has been a longtime leader, leader of people. He understands what makes people tick. And just recognizing sometimes, like, you know, I'm I operate really well in my own little world where I dig into operations and things, but like sometimes I really lean on Nathan to understand, like you were describing, like, look, you can have your opinion about how things are, but at the end of the day, it's well, what do the people feel? Because they're the ones that are interacting with the guests. They're the touch points of the guest. And, you know, I've noticed just in Nathan's leadership that he is, he is constantly recognizing people for when, you know, they're they're doing a good job, but he is, he's constantly reminding people that their work is meaningful, that they, you know, they are providing value not just to us as from you know, the business owners, but to the guest and the guest experience. And that when the guests come and they stay with us, that they're having a tremendous impact on, you know, their their vacation and and something that's critical for them. Like, you know, these people work all the time, they go on vacation. This is a this is a really important moment in their lives. And so just constantly reminding the team that that's front and center that, you know, their work is valuable, their work is meaningful, whether that's the GM of the resort or if it's the house cleaner, they are all having a tremendous impact. And so, you know, listening to you reminds me a lot about you know how I've observed Nathan do a tremendous job in building the culture of our own team.

Neil Shah 30:29

That is so good, man. I love it. I'm gonna piggyback on that really quick. Um, you are speaking my language, by the way. So the reason we appreciate the staff and we want to thank them is because anybody can show up and do their work and go home. They have done their job, right? The reason we appreciate them is because they are not just there to do their tasks and go home. When we see them genuinely care about their job, the guests, the property, and other team members, they don't have to do that. So now they're going out of their way to do more than what's the basic requirement of the job, right? For that reason, we will appreciate what they are doing. And it's important to show the appreciation. And sometimes we take things for granted, man. We have to remember every little thing matters, and they are the face of the property. They are the ones who are talking to the guest every single day. If I'm getting great reviews, it's because of them. If it wasn't for them, I wouldn't be getting those reviews. I'm not cleaning rooms, right? So the other thing I also think about is um when I asked be the GM on property, I have a lot of control. I have a lot of um one-on-one with the guests, with the team members, right? Every day, all day. I'm no longer on property all the time. Right. So, how do I make a difference? I make a difference by making decisions that are going to make our team members' lives easier and more efficient. When we do property improvements, I'm making more a difference in our guest experience, right? And creating uh basically their well-being, right? So I get a lot of joy in making decisions that are going to make our employees and our guests happy. That is what I do. I work for the staff, honestly, right? People, they go about titles and like, yeah, I'm the general manager, I'm the BOS, I'm the operations manager. I don't care what your title is. At the end of the day, we actually work for the staff. Because if they need something, who are they going to call? They're gonna call me or the GM. When that shift happens in somebody's mindset, they will automatically do a much better job and be much more successful instead of thinking I am the boss, things happen the way I want them to happen. So again, that's a little bit a little bit of rant here, but uh this kind of thing is that we're gonna make it.

Nathan St Cyr 32:58

No, it's the difference. Look, that is the difference maker. I mean, for you to have that, you're instilling a culture that every one of us from the top down is responsible for really serving our team so that they can serve our guests and ultimately create a feeling. This all comes, it's so nuts to me. Hospitality is in essence, it's very simple. It's about okay, I have to create a feeling. I'm creating a feeling for a guest. Now, to get there, there's a tremendous amount that has to happen and occur and go right, but it everything's everything focused from the top all the way down, from the down all the way to the top, should really revolve around are we doing everything that we can to execute that feeling that we've sought after to create?

Neil Shah 33:50

Yeah.

Nathan St Cyr 33:51

Yeah, you know, we recently.

Neil Shah 33:54

Sorry, just let me finish one more thing really quick before I forget. You know, we talk about influencers, right? The social media people, they come to the property, they take videos, they show the property really nice and destination, all that good stuff. When you look at guest reviews, when somebody takes time after their stay or during their stay and write whatever, a nice 5, 10, 15 line review that is glowing, right? With guests, but they just had the best time of their life, best experience of their life at this one particular property, right? What we call them, we call them promoters. Because that person is doing that because we have done such a good job that they felt compelled to take time out of their day, whatever 15 minutes, 20 minutes of their time to write this wonderful things about the property and the staff and the location, whatever else they like, right? That review, we all know how important reviews are. If you talk about Google reviews and typicalizes reviews, how to get more, how to get five-star reviews. The best way to get good reviews is to run the property more efficiently, right? Clean and comfortable room with outstanding customer service. Easier said, very difficult to do. So when we do that, you create happy guests every single day, and then over the time, you will accumulate thousands and thousands of positive reviews that automatically increases demand for the hotel because there are so many positive things people look at, then they will choose to stay at this property. They will pay $20 more versus the property next door, because what they are seeing from the guests themselves, there is no influence from the property at all.

Nathan St Cyr 35:42

I love that. From the promoters, that's a cultural name that we're gonna start utilizing just from this. Like we're gonna, hey, let's go and make sure that we are building up promoters. And and then to have that gratitude too, because you're right, the most valuable thing in their life is their time. They take 15 minutes out of their life to go and do that. There's there's nothing more valuable than that. And then they are the ones that drive your occupancy and your ADR, they become your promoters. So let's focus on promoters. I love that.

Michael Russell 36:10

Yeah, I love this. And then I've taken a minute to acknowledge, like so often, I've listened to so many podcasts, and uh, much of the emphasis is always placed on the idea of getting started in real estate or in our unique niche to purchase your first hotel. But very little time is often spent on the minutiae of these operations, these operational excellency. And so sitting here speaking with you, with someone that has over 20 years of experience, that has crushed it in the hotel game, that has over 400 keys and is growing and is looked at to as a mentor for a lot of people, you know, it's it's amazing that you're really hyper-focused on these these details. When it really comes down to it, this this conversation to me, I'm gaining so many takeaways. I've just I just want to acknowledge I'm really I'm really enjoying this. Um and and I do so I I want to I want to zoom out if we can for a minute here because um I I really wanna I really want to dig into your personal story a little bit, if that's all right, just because I find it to be so inspirational. And I feel like it epitomizes in many ways the American dream, right? You know, you you immigrated to this country more than 20 years ago. You you you um are originally from India. Uh you moved here, I believe, to Los Angeles um somewhere around the year 2000. Is that correct? Uh I moved here.

Neil Shah 37:36

I didn't have seven.

Michael Russell 37:38

Okay. Okay. So you didn't have, from what I understand, a lot of family or a lot of resources here. And you really, in a, in a sense, kind of bootstrapped your way up and went from, you know, without a huge support system built in here, you created this from, you know, in a sense, empire, right? This real estate empire. And so your your story is inspirational. Can can you take us back to your your your first introduction into hospitality? You you said you were working for an independent hotel, and this was was this in Los Angeles originally?

Neil Shah 38:10

This was in NIM, California, two and a half blocks from Disneyland. What a place to be. How lucky am I, right? How how lucky am I? Like I ended up from India. I come to the freaking US. I get a job at a hotel walking distance from Disneyland. It's freaking amazing. Yeah. So you were to answer a question.

Michael Russell 38:35

Yeah, so you're working at that hotel, and and you you progressed then from your transition went from working at the hotel at the front desk. You ultimately became a general manager, and then from what I understand, you met your business partner, right? And and the business partner helped your business partner introduced you to the world of investing. Can you kind of walk us through that experience, that sequence of events that ultimately led you to start investing in hotels?

Neil Shah 39:02

Yeah, sure. Um so when I came here um from India, the plan was to continue studying electrical engineering, um, but more importantly, to get back into business. I didn't want to just have a job for the rest of my life. And I realized that was gonna be a very long journey before I can start a business. So somehow I ended up at one of my uncle's friends' hotels in Anaheim. Um, and because I had just come from India about a month ago, I have no idea how things work here. I have I'm still learning how to speak proper English. Um, so I'm like, I'm just at the hotel. They're like, you can stay in room 200. Um, if you're sold out, you sleep on the sofa in the back office. And besides that, you just get up, get ready, and come to front desk and do whatever that needs to be done. Like, cool. I don't mind. I don't care. I'm here. So I lived in room 200. I worked my days. I don't get to sleep until night already, which is like whatever, two o'clock in the morning, then I get up and start all over again. But what I remember is just within the first couple of weeks, um, I'm not interacting a lot with the guests yet, right? I'm still trying to figure things out. But once I was able to start talking to the guests, checking them in, checking them out, answering questions, making reservations on the phone. Every time we do something when I'm making a difference in their experience, and you see the smile on their face, and they are appreciating you helping them, the feeling you get in that moment, that I have just given somebody a suggestion to go do something, and they came from New Zealand, for example, and they're just gonna have a freaking blast. That is gonna change everything about their trip. It's gonna make it so much better. And their appreciation in that moment is what drives me. It's the most rewarding thing in the world, right? And I'll get a little more technical here, but the other opportunity in our industry is not when everything is right. The opportunity also lies when things go wrong. When somebody's in a room and something's not working or something is going wrong, and now you're like, oh shit, now this is this guest is not having a good experience. So instead of complaining and not doing anything about it, you, I actually take that as an opportunity and say, well, now what can I do to flip this completely? Because if I flip it completely and the guests were like, dude, I called, they responded right away, they took care of the problem, they followed up to make sure I'm still comfortable, and they did something on top of that. So what I just did is actually more important than just a regular event of giving somebody suggestion. This is now a story a guest can tell to now this, what social media in those days to the friends and family. This makes even bigger impact than just your typical conversation with a regular guest and just trying to create a better experience. Um, but anyway, that's how I started, and that's when I realized, you know what, this is what I want to do. Because it's a business. I get to make people's days, people create better experiences, and I can make money. So I was like, this works for me. I I love this. Um anyway, so I continued working. I eventually went and got a degree in hotel management, and then I got married. Uh, we moved to Flagstaff to um uh uh as my first official general manager position at a days in. And then um about a year or so later, um, through another common friend, I met my business partner. Uh they ended up buying a property in Flagstaff, and they were kind enough to allow me to invest whatever little money I had saved. Um, so that was my entry into ownership um in hotels. Um, I want to talk about it.

Michael Russell 43:16

Can you tell us a little bit about your your business partner though? Can you walk us like so? How is that relationship? What was the dynamic there?

Neil Shah 43:24

Yeah, definitely. So before I talk about my business partner, I want to just take a couple of minutes, talk about people in Anaheim, where I worked in the beginning, right? So I think I've just been very lucky to somehow meet great people. Even when I was in India, my friends and colleagues and my bosses, everybody had been freaking amazed. They're five-star people, man. They're overall great human beings, they're motivated. Um I just feel very grateful to have met all these people. Uh so when I was in Anaheim, I worked for this guy who owned the hotel that I worked for. Um he was such a nice guy. Like the way and think about this. I had just come from India, so I'm just new to this world and new to like how people talk, right? There is there are different ways of saying the exact same samples to somebody. He has this uniqueness about him as to he would be so freaking polite in the way he talks to you, even in his freaking emails, like his language is just different. So I I learned so much from him during that first couple of years working at the hotel. One, I learned the hotel business, then I learned all these amazing characteristics as to how to deal with people, how do you talk to them, how do you how do you make an impression on somebody, right? How to be genuine. Um, so that was my first um learning experience about how to be a good human being, in a sense, right? Uh and how to effectively communicate with people. Um my business partner is a lot older than I am. He's not my dad's age, uh, but he's so driven. Um he's 75 now, and he is still looking to do deals. It's and he's been the same since the day I met him. Right? They had been looking for hotels for so many years uh until they end up buying a property in Schlagstaff, and they finally found one. I was lucky to meet them and I was able to help them with that property. Uh, and then he grew uh to a second property in Tucson, and I moved to Tucson to run this property. Um But him and I connected really well on a personal level. We have a much uh better understanding between ourselves, we respect each other, but at the same time, I will speak my mind when we are talking about business, and he will do the same because it's business.

Michael Russell 46:01

But when the business is done. Do you feel like so on a couple of things? Number one, it sounds like it's safe to say that he might have been, he he might have provided some mentorship, right? At his stage in life, being older than you, he had some life experience. So, you know, I think that that's a that's an important point for a lot of our listeners is if you don't have experience, you know, find someone that can that can be your mentor. And I I I've witnessed you doing that now. Um, you know, just you being on the show is an example of of the fact that you are finding fulfillment from contributing to to give back, to serve others. Um but in terms of your partnership, do you feel like you guys had complementary skills? I think you were you're kind of touching upon your your differences in your personality a little bit, but like when you enter into a partnership, you know, Nathan and I, we have very, very different um skill sets, but they they serve each other very well together. And so in in this partnership, you know, maybe you can describe like how how did you guys work well together?

Neil Shah 46:57

Yeah, that's a great question, actually. So when we started, I was new to this industry, I didn't know anybody. I can borrow money for myself, forget raising money, right? So uh no, that's just truth. I mean, I borrowed more money than my own on credit cards for my first deal. Uh, besides the story, but yeah, he was able to raise money. I can run the hotels because I come from an operational background, right? So I can run the hotel, he was raising money. He still ran the hotel, but I helped him with what I had learned. Right. Um, years go by, and then now I have grown and I have learned and I have cultivated new relationships. So now I'm I'm also able to raise money. I'm running all our hotels, and now my job is to make him retire. Like he's been retired. He travels wherever he wants to travel, he has to worry about nothing. I take care of everything. That is my my effort, my slight payback to what he has done for me. Right? But going back to mentorship, right? He definitely gave me mentorship, but a lot of wisdom. Because, you know, we don't think about this. He had been doing business 20 years before he met me, 30 years before he met me. I'm just starting into business. So there are times when we are discussing something or decision has to be made about something, and if you feel something very strongly about something that I'm not agreeing with, I would just say, you know what, if you feel so strongly, redo it your way. Because you have seen a lot more of business and the world than I have. So I will have that much trust in you that if you feel strongly about this, then we that is what we do. Uh, and then over you know, over the time things changed, and he started seeing that I am capable, I'm proving myself over and over again, I'm gaining his confidence. So now we are at a point where I make all the decisions, he's comfortable, there's trust. Um, and life is great. I'm I'm extremely grateful for meeting him and um for him to be my partner.

Michael Russell 49:04

Yeah. Well, I think the key word there is trust. I mean, you that really hits home in order for a partnership to be successful. You might not always agree, but if you trust each other and you're like, look, I'm good, you're good, I trust you. I'll all concede this decision or or you know, this choice to you, and you you trust each other. I think that's just so critically important when evaluating uh a partnership. So that's just a great point. So so you guys met, you invested in this deal, um, in this deal with him, and then so walk us through. You went from working as a GM, investing in a in a hotel, and then how how did you ultimately go from what was a couple of hotels to now you've got you know more than more than 10? Um, can you give us a a brief understanding of how you go and you you identify key operational efficiencies and then you scale?

Neil Shah 50:01

Yeah, for sure. Um so what changed my life besides meeting my business partner is the property we bought in Tucson. Um, we bought that property in 2004. Um I invested some money and I managed that property. I was a GM, so I ran the property. Um, very successful um asset. We doubled the revenue in the first three years and continue to raise it more. Um my revenues were higher than the purchase price after three years of three or four years of buying the hotel. Right. That's incredible. Um but for the next nine to ten years, we didn't buy anything. We were looking, but we didn't we couldn't find what we liked. But during that time, all I did is focus on learning, learning, learning, and perfectly operations. Um so then Can you repeat that how long? Nine to ten years.

Nathan St Cyr 51:07

Okay, so I I I want to just call the time out right here because I think in today's world, no, I think that this is a really important part. Like, like seeing where you are right now, when we can fast forward and be like, guys gone full circle in multiple, you know, hotels, and then now he's got 10 and he's still adding to his portfolio. But there was a period of time where you were searching and looking for nine years where you did not add a property. And for us that just want to move and move and just force things to happen sometimes, I think that that is an unbelievable point that you were patient through that time, you dug in, you did what you could do, which was learn and get better. And now fast forward to where we are and looking at how it's paid off is like, dang, sometimes we are just so freaking impatient. So I just I wanted to point that out.

Neil Shah 52:05

Yeah, when I was young, I didn't have much patience, but I learned because of my business partner, and but just by growing up, I guess. Um, so here is how things worked out. So um by 2005, we have had we have three hotels. Until 2015, nothing happened. I'm just working, learning, and saving money, right? Looking at deals, trying to figure things out. Uh, and then 2015 comes from 2015 to 2021, in six years we bought six hotels.

Michael Russell 52:43

Wow.

Neil Shah 52:45

2023, we bought one more, and 2024, we bought two. So I guess this is not somebody should follow the steps. It's just how it worked out for me. And I'm very thankful for that because I prepared myself, um, I positioned myself for success. Right? It should not, it didn't have to take nine years, by the way, right? But if you spend two, three years, four years, whatever, to either learn the business and save the money, right? Because we were not doing syndications. We are raising some money, but we're not raising, like, you know, we have done bigger deals, of course, but um, it's not a syndication. I'm not calling, I don't have 30, 40 investors, right? We have a small group of investors that have been investing with us for all these years, and then we have more now. Um, but I am very thankful for those nine, 10 years. I've learned so much during that time. Uh, and that is what prepared me to then say, I'm ready to go. And when the opportunities came, we jumped on them and kept doing it again and again and again. Um, but yeah, uh that's that's how things worked out.

Michael Russell 53:57

Yeah, I think the the key takeaway here is that you know you're extremely disciplined. And when you you took that time to really prepare, you were identifying well, what's working, what's not. You were you were sharpening your sword, so to speak. And then when you felt like the moment was right to strike, you accelerated and took action. Six properties in six years. And where you're at right now, I would define it, yeah, you are absolutely accelerating because every time I hear from you, it seems like you're you've got another deal under contract. So I I guess I'm just I'm really inspired by what you've been able to accomplish and then where you're headed. I'd like to get an idea of you know what ultimately your your objectives are. You know, what's you're at this point now with X amount of doors, X amount of keys, like you financially you're in a very good place, but what's motivating you to continue? You mentioned that your partner, you know, was uh in his 70s and still wanting to work and buy deals, but what's motivating you, Neil? What what's your why?

Neil Shah 54:59

Well, there are multiple things. One, I'm part of groups that include people like you. So the whole group and you guys inspire me to keep keep going, to be honest. I mean, it's it's amazing, right? It's contagious, right? Uh so that's one reason I want to keep going. Um second reason I would say is I want to lead by example for my kids. So um two words come to my mind admiration and inspiration, right? Um I want to inspire them for from what I have achieved, throughout, but more importantly, what I do now. Right? Because yeah, I've done all this stuff, past this, past what I who I am now, what I do now, I want that to inspire them. And I want them to admire what I have achieved. Right? Um, so without thinking too much, those are the two words that come to my mind. And and I want to share um the knowledge and experience I have gained. Um, I am a little concerned when I get on this mastermind calls, when I talk to, I talk to a lot of people, they call me about the different deals, and I'm a little concerned about them. They are not, and it's not their fault, they're not thinking the every aspect of the deal making, and then what happens after the deal. Um, so I for that reason, I want to guide people, I want to mentor if I can. Um, I want to make sure I can help somebody uh prevent from prevent uh stop them from making any big mistake. So these are not you're not buying a house, dude. You're buying a millions of dollars worth of assets, you are raising money from other people. This is serious business. You have to think about everything, you have to know how things work. You people talk about, yeah, find the deal, then money will come. Okay, well, you found the deal, maybe money also came, and then what? Who's gonna run it? Who's gonna make it successful?

Nathan St Cyr 57:10

Okay, you're speaking our love language right now, Leal. Neil, just so you know, like this is this is seriously, we we talk about this all the time. Like, and it may not, it may not, it's definitely you know, not investing 20 years into you know operating, but we dug in and learned, like, we bootstrapped it was our money we put on the line. And then we freaking dug in and said, let's obsess over the guest journey, let's learn this, let's understand, let's create processes, let's implement, let's really understand, then let's find out where our weaknesses are. Let's go through this entire process so that when we look at the growth piece and adding that next property that maybe we can't do on our own, but we bring in capital partners that are first and foremost that we are under the mindset of we will protect their capital and grow their capital. It it that protection, we named our actual um uh our our business name, our investment arm is named Malama Capital, the Hawaiian meaning of to protect, to secure, right? So um I just what you're saying right now, we we are always talking behind the scenes of there's this is not just about going out there and being able to acquire something. I feel like anybody with the right action steps can go and acquire something, right? You can go and do that. But when you look at the thesis, the investment thesis of this is where it's at, this is what it's gonna take to get it to hear, this is why, and this is the experience I'm gonna deliver. Those are two very and then that how this is how I'm gonna operate it long term, those are very different conversations than just I'm gonna go acquire a hotel. Yeah, and and I I just I'm I'm super grateful that we have you and that her group has you, and that you've looked at that as like, okay, here's some purpose behind, you know, I can take all of this experience and continue to seek to serve. And like you're just saying that. Like, I want to help people avoid making polish massive mistakes.

Neil Shah 59:25

Like, yeah, yeah, thank you. Like I in fact reach out to people when I see they're doing deals and looking at stuff. I don't know why they didn't reach out to me, but I was like, fuck, man, I gotta call this person, like, hey, let's run down your deal. You don't have to do what I say. I'm gonna give you my two cents. And it's your money, it's your life. But at least so, yeah. Uh I'm just, as I said, I'm a little concerned and I'm happy to um help anybody who uh may need some guidance. Uh, because I had that partial, right? Somebody was there with my business partner, was there. We didn't look at deal. So he has his own approach. I was young and I'm like, yeah, let's go, let's go. He's like, hold on, be patient. Look at this. Look at this. Look at this. Have you thought about this? Like, oh, yeah. So I had somebody like that. I want to make sure somebody else who wants to, who is aspiring hotel year, coming from STRs or long-term rentals, whatever that may be, they should have somebody to guide them, to mentor them, whatever that they want, right? So yeah, I'm just trying to give back and help people to get on the right path here.

unknown 1:00:34

Yeah.

Michael Russell 1:00:34

So I think that's a great point to end on. I think if we could just summarize then what you're describing, if you were to let's say you were to provide some advice for an aspiring hotel investor or entrepreneur, what advice would you give someone to starting out in the hospitality industry today?

Neil Shah 1:00:56

Um so there are a few things I want them to really think about when they think about buy box. Um the most important word that comes to my mind is be realistic in all these different things, right? Be very, very realistic. Location. How far are you from the deal you're looking at? Are you willing to travel half a day taking a flight or drive? Are you willing to travel an entire day to get there? Right? What does that look like for you? Right? Um, are there enough demand generators in the areas or locations you're looking at? Is that an up-and-coming market? Right? What's happening in the next five years? What has happened in the last five years? Right. So location is important, right? Uh price range, this is another important aspect. How much of your own money are you willing to invest? And how much money can you raise? Don't look at a $7 million deal when you, one, you may not have enough money of your own to invest in second, you have no ability to raise two, two and a half million dollars, right? Um again, be realistic. Umperations, how many rooms, what kind of revenue are you looking at? If you're gonna buy a 10-room property that's gonna end up doing on a great year, I don't know, three, four hundred thousand dollars, five hundred thousand dollars in revenue, can you run it with full staff? No. Are you are you able to run it uh staff like model or completely no staff? What does that look like? Right? Uh do you want to buy a 20-real, 30-realing property? How does that work? Uh is that enough revenue to justify full operation, a proper GM or an outside property management company? Are you willing to go to the property and run it yourself? What does that look like? Right? Uh, another important aspect is your own creditworthiness. Are you able to get financing yourself because of your assets? Or do you have somebody you're gonna partner with that allows you to get financing?

Michael Russell 1:03:01

Right? As you're talking here, I'm like, dang, dude, there's a lot to consider if someone's gonna get in the game. You know, this is this is like you said, this is real business. And I you know, I recognize you're you're you know, you're not just a guy that's done well in hospitality. I'm recognizing that if you zoom out, you're you're really an excellent business person. And ultimately you're you're going through this methodically um to recognize, well, what are all the different decisions that need to be made and the consequences of of each, you know, of each thing that you do. Um, Neil, I I feel like I've only gotten through maybe half of the questions that I wanted to ask you, but we're definitely we're gonna have to do a part two. So, audience, stay tuned. We're gonna have Neil back on the show again for certain. If if you'll come on the show again, we're formally uh officially invited.

Neil Shah 1:03:55

I'm happy to go on anything. You just call on me.

Michael Russell 1:03:57

Thanks. Thanks for being on the show. This has been fantastic. I've got a whole page of notes here. I've been writing as I've been talking, and um, I'm so grateful. I'm excited about everything that you have in your pipeline. Um, so again, thanks so much for being on the show.

unknown 1:04:12

Hello.

Nathan St Cyr 1:04:13

Absolutely. And and Neil, I appreciate, I want to say one thing. I appreciate um just as we went through this, how you really gave credit to others. Um that was like that always inspires me. Like you're not just you always are get instead of just taking credit yourself, because we look at you and we're like, wow, it's Neil, you know, and but to be able to like give credit where where credit's due, um, I thought that that was uh uh really inspirational. So appreciate that.

Neil Shah 1:04:45

I don't even scratch the surface, guys. There are so many more people I have to give credit to. It's not just me, including my wife and my kids. Um, so without them, I wouldn't even be without my wife, I wouldn't be where I am today. There's no doubt in my mind. Gonna have her on the show next time, then. Well, we'll both come.

Michael Russell 1:05:06

Appreciate you, Neil.

Neil Shah 1:05:07

All right, guys. Thank you so much. My pleasure.

Michael Russell 1:05:09

What an incredible episode. Big shout out to Neil for joining us on the podcast. If you want to get in touch with Neil, you can find him on Instagram. His handle is at Nilong007. That's N-I-L-A-N-G-D 007. Or you can visit his website, which is intechhospitality.com. Lastly, if you have been enjoying our podcast, please do us a favor. Leave us a five-star review. Make sure to follow us. When you leave us reviews, that really helps us to uh increase our visibility. Ultimately, this will help us attract more guests and higher quality guests so that we can continue offering you all the insights and knowledge about investing in hotels. Thanks so much. Aloha. Peace.