How AI is Disrupting Hotels—And Why Small Operators Have the Advantage | Ari Smith E18

💡 AI is revolutionizing hospitality, but not how you think.

The big hotel chains? They’re struggling to adapt. The real advantage? It belongs to small, independent operators who know how to leverage AI the right way.

On this episode of The Hotel Investor Playbook, we sit down with Ari Smith, an AI scientist and futurist, to unpack:

✔️ How AI is making boutique hotels more profitable than ever

✔️ Where to automate—and where human service is irreplaceable

✔️ Why ultra-luxury stays will always demand a human touch

✔️ The AI-driven hospitality tech that’s leveling the playing field

✔️ How micro-communities could be the future of resilient real estate investing

Ari is building a 550-acre micro-community in Vermont, integrating AI with nature-driven experiences—AND developing next-gen tech that could change hotel operations forever. If you’re in hospitality or real estate investing, this is an episode you can’t afford to miss.

📍 Links & Resources:

•Connect with Ari: Balance Farm | FatRat.ai

•Follow us for more: The Hotel Investor Playbook

•Got questions? DM us on Instagram: @the_hotel_investor_playbook

🎧 Tune in now and get ahead of the curve in AI-driven hotel investing!

Connect with Michael on Instagram or LinkedIn.

Email Us at info@hotelinvestorplaybook.com

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Transcript

Michael Russell 0:00

AI is about to upend the hotel industry, but not in the way you think. Big brands like Marriott and Hilton, they're actually at a disadvantage. And the biggest winners, they're not who you'd expect. Today, we're sitting down with Ari Smith, AI scientist, futurist, and microcommunity developer who's pioneering a new model of hospitality investing. We're diving deep into how AI is changing the game for boutique hotel operators, why human service is becoming a luxury, and how real estate investors can hedge against an uncertain future. If you're wondering where the real opportunities lie in AI-driven hospitality investing, this episode is for you. Let's get into it. Welcome to the Hotel Investor Playbook, your guide to building wealth and freedom through boutique hotel ownership, hosted by Mike and Nate. Get in the game, welcome to the Hotel Investor Playbook. We're Mike and Nate, founders of Malama Capital. This podcast documents our journey to building a $400 million business, sharing our wins, losses, and lessons along the way so you can apply them to your own journey. On today's episode, I'm pleased to introduce Ari Smith. Ari is an AI scientist and self-proclaimed futurist who has a micro community or micro resort in Vermont and is doing some pretty incredible things. So this is the first time that we've had someone of your nature on this show. And I'm pretty excited to dive into the concept of AI, but as it relates to hospitality and specifically hospitality investing. So, Ari, welcome to the show. How are you doing?

Ari Smith 1:50

Thanks. Doing great. Good to talk with you guys. Thanks for having me on.

Michael Russell 1:54

Yeah, great. So let's start there. Can you give us an understanding of how AI is impacting luxury hospitality and boutique hotel investing?

Ari Smith 2:04

Certainly. So AI, I'd say it's really like reshaping luxury hospitality by doing like the things that you would guess, like automating operations, uh enhancing guest experiences and disrupting like the some of the more traditional real estate models. But I think that the things that people really need to understand, as especially investors, um, is that AI really should be augmenting and not replacing like the human elements that should define like luxury or high-end hospitality. And that's that's what the impact should be. And when you get through the core impacts that it's going to have, like operational efficiency and cost reduction, right? We already know that you know AI-driven demand forecasting and dynamic pricing models, which I've built a number of these types of systems, even things like automated housekeeping and predictive maintenance, these are just wiping inefficiencies out, right? And the hotels that adopt those types of AI-enhanced operations, they're definitely going to maintain cost advantages and have higher margins. So that's great for them. For hotels, for you know, luxury stays of any kind, those are logical places to introduce uh AI. And then hyper-personalization for guest experiences. This is where you're using like AI to analyze past preferences and behavioral patterns and you know, using real-time data to try to figure out how to create the most personalized stay for a guest. This is the other area where it's positively impacting and where people want where you should be pushing more of it. Then there's the aspect that is maybe a little bit different, where it's like the labor market disruption. And this is what I think is is really important to make note. Probably the most important thing, because it's I think it's least obvious, is that the humans as a luxury, right? So an AI-driven automation, yeah, reduces the need for labor, but like human service is gonna become a luxury feature. And we're seeing this in the properties that my wife and I have. It's like it's not a standard expectation. It's almost like gonna be an inversion as technology thinks makes things more sophisticated, you're gonna pay more for that human touch. And so I think that the the hotel or the stay of the future that's gonna be like maximally effective from a revenue and sustainability point of view is gonna have human concierge that are focused on providing VIP and like sort of an ultra-premium experience. So that that's just some of the initial thoughts I have on it. Like the the grand hotels, like the Ritz and the plaza, they had like the top level of human service, and AI is sort of pushing that commoditization through automation, but the ultra-luxury places, they're going to remain human-centric. I really do believe that.

Nathan St Cyr 4:38

Okay, I gotta rewind a little bit. Um the first thing that you said that was like, okay, well, what did that really mean? Was you made a generalized comment about um the disruption of general real estate investing. What what did uh what do you mean specifically by that? What does that mean?

Ari Smith 5:00

Well, real estate investing, I think as with as is the case with I think so many, well, actually all aspects of society, it it's undergoing a massive change. And the thing is, most people aren't aware of it, but the change is being driven um entirely by artificial intelligence and the rapid advancements we're making in artificial intelligence, which are causing and are going to increasingly cause an elimination of human jobs and of viable like uh opportunities for people to make money. And it's going to happen, is already happening so much faster than anybody is really aware of, unless you're in my industry, right? And it's going to and the speed, like the acceleration is increasing too. And so those changes are pushing downstream like effects to every single industry that they're touching, which is all industries. Real estate is a particularly interesting area, though. And the disruption, I think, is slightly different than it is for other other spaces, because with most industries, like thinking manufacturing, robots, AI, automation, not much question, you know, 90 plus percent of those jobs are are done for, right? Um, and and this is true for I think most of industries. It's it's a fairly uh dystopian view of things, but it's also pragmatic based upon what we've seen. Real estate's different though, because real estate as a as a as an asset class, it's so unbelievably attractive because you can't produce more land. So I think that the opportunity to invest in real estate is I think it it's it's inverse relative to most areas where like you might say, well, why in the world would somebody be thinking about investing in like, I don't know, a shoe company when who knows if we're you know what the what the future is going to look like. But we know that whatever that unknown future is relative to all this disruption that's occurring, having more land, having places for humans to experience, to have human experiences, uh, that is unequivocally going to uh be an area of enormous growth. It might be the area of the the greatest growth outside of directly investing in AI. And there's something far more interesting when you think about the value drivers that that you you obtain by investing in real estate. You're creating a space for people to have whatever kind of experiences that they want. And so that disruption, the awareness that real estate's not just going to be about housing bodies, it's gonna be about driving experiences in a way that you cannot achieve through automation or like yes, those things can help, but they are an augmentation rather than a replacement for the the aspects that make real estate investing and hospitality uh in uh management in particular so incredibly attractive. Because it's it's always will be human-centric. And that's a that's a a thing that makes real estate really attractive to me in a way that I don't even know what other areas I would deploy capital into that I would think is are nearly as durable for again such an unknown future like that.

Nathan St Cyr 7:54

Okay, so so what you just said was really interesting because you break down the disruption in real estate investing in general. But then the next question for me becomes, okay, well, so why specifically hospitality? But then I think that what you've drilled down to is that that value of the human experience is how humans actually have experiences, has a value proposition that you feel is something to invest in as we move forward. And when you can combine that really is the heart of hospitality, right? The ability to create that experience and then that it's backed by real estate is where you feel like that's your why, that's the direction.

Ari Smith 8:39

Yeah, I don't even know how there's another way to think honest. I mean, of course I'm biased, but it's like it things like microcommunities, whether the kind that we're building here, balance or that that we're trying to be as like high-tech as possible while still treating AI as a tool versus sort of like a digital overseer. But we're gonna go right up to that edge because it's my background and whatnot.

Michael Russell 9:00

All right. Well, I want to circle back to a couple of points you made because from an investment perspective, you were describing how AI is pretty obviously making things more efficient. And in many ways, it can replace human capital. But there is a point to be made that the commoditization of uh hotel or hospitality. So the idea of being more efficient and having people, let's say, check into their room without needing it, you know, to go to the front desk and just using their smartphone or an app to get it. Those are examples of ways where technology or even AI and can automate things for people, but to a degree that can limit the level of luxury, which then affects the the ch the amount that you can charge. You know, when you look at what makes a five-star resort, there's there's certain criteria. I think that I may be wrong, but I believe that a five-star resort has to have a minimum of like three restaurants, right? And the point being, the reason what makes it a five-star is because they have these amenities that are serviced by humans that are providing that level of hospitality. And so in many ways, technology and and and AI is reducing cost and making uh from a profit perspective, there's efficiencies that can be gained to make more money by by saving on costs. But then you may be limiting or mitigating your upside in your average daily rate because you know, when people think of luxury, they don't want to go and and, you know, oh, I gotta like go into an app and request a towel from something. No, I just want to call the front desk and get a towel delivered to my to me. That feels like I'm being serviced and there's luxury. But what you mentioned, which I haven't heard before, I haven't thought about from this perspective, was not just from the side of saving money and efficiency, but knowing people's preferences and automating that process so that people are perhaps getting a service or getting uh something provided to them that they weren't even expecting because the system knows, oh, based on these behavioral traits, let's say they're gonna want to prefer this. They might want at a certain hour, they might want turn down service done, or they might want uh you know, breakfast delivered automatically with their preferences, exactly how they want it. These types of things, I don't know. I'm just thinking hypotheticals. But the point being is there's probably a lot of areas where from a human perspective, you're constantly managing people to be like, okay, do it this way. Yeah. And when it comes to service, like if you have a system that knows exactly how each person wants it, golly, feel someone will feel special and you don't have to manage the human capital to much degree. I'm excited about that idea of using AI for personal preferences, for offering a higher level of customization and customer service. Can you dive into that a little bit more?

Ari Smith 11:43

Yeah, that's so this is I'm I'm really glad that you you mentioned this. Um, because okay, so I believe that the best properties of the future are going to leverage AI in every conceivable way, except for at that inflection point where you want humans involved. So hyper-personalization. Yeah, I've already built AI systems that'll do like that'll data mine somebody from like their name or like even you know just whatever basic data you have and can say, oh, build like an archetypal profile or like a psychographic, like you know, overview of this individual and like understand what sort of demographics that you might segment them into. So you can have you can make some predictions about what they'll they'll like. And then as they're going through their stay, you can acquire acquire more and more information about them. So AI is a fantastic tool to provide that that kind of insight autonomously in a way that humans really can't. There's no there's not enough time in a year, let alone a day, to do this kind of data mine that that uh you know automated systems, especially like agentic um AI systems that are like narrowly focused on various aspects of of operating and running a property uh that they can do in in in an instant. But the key is optimizing everything on the back end, optimizing everything at like the business uh like the middle, the middleware layer. So you want your internal operations, you want like your ERP, your CRM, your your SFA, like your EDI, you want all of those like enterprise systems to be seamlessly integrated. You want to do that?

Michael Russell 13:11

Where are those things?

Ari Smith 13:12

You know, it's not a lot a lot of active smallest. Uh technical uh gibberish. Uh so ERP is like SAP, like enterprise resource planning. Um, CRM stands for customer relationship management, so think of like Salesforce, uh, an EDI, just like electronic document interchange, just like knowledge warehousing, like basically all the systems, SFA, Salesforce automation, like think of marketing, sales, customer relationship management, resource planning, and all of these, obviously the other uh aspects that would that you utilize in the property uh like you know, property management systems themselves. But all of these you want to optimize with AI as much as possible. The business intelligence analytics, uh, you know, doing this type of hyper-personalization, creating these customer profiles, providing reminders where the differentiation, I think, and that's gonna be a commodity. So all like mid-tier hospitality will all utilize that. So you'll have your lowest end, which won't upgrade, won't enhance their services to encompass you know technology. They'll just be the low tier that is is eventually will fade away. Uh the mid-tier, which is gonna represent the majority, they're going to optimize everything. And that'll be that'll provide really great cost efficiencies for them. But the high touch, it's gonna be like the AI resistant aspect, like the experienced best, uh like based destinations. They that's what the next, like the asset, the like the great asset class, it's the human-centric, high-touch, immersive scenario where you've got ultra-private, potentially like AI-free resorts. It doesn't mean they're not using AI, it means that a human is delivering it, it's not coming on a drone. The food is being brought by a human. And an AI would tell, like, a maid, this is how they like their bed folded, and they want like they like they're vegan. So make sure that if you leave chocolate, it's coconut-based and doesn't use butter, like little things that a human's not gonna want to remember, but can easily adapt to. And you combine that with what the human is better at, which is creating like a genuine connection, even if it's ephemeral, just passing that maid who just finished your room and saying thank you. Like, we have found that there is a a definitive ROI on those touch points. In fact, in some cases, when there's been customers that have been somewhat uh, you know, like something has gone wrong or like power went out, it was the human going there and helping them resolve their problem, not even necessarily technically, but making them feel heard. There's no good way to automate that because people know it's automated. They're just talking to a chatbot, they know that chatbot doesn't really give a shit. But a human going to talk to them can the empathy it increases. Like we found that we get better reviews when a little thing goes wrong and we get a chance to re to fix that problem in a way that makes the customer understand that we really care about them versus just oh, automatically like just have everything go smoothly, but have the be a completely sterile environment. So that's really what I'm talking about. It's not a rejection of technology, it's a utilization of technology right up to that tipping point where the customer never sees it. And in fact, the best utilization of tech should be as invisible as possible. Even if you have voice assistance, you want them, you don't want speakers hanging out, you want everything and microphone hanging out, you want everything invisible so that the customer feels like things just happen. And these kind of experiences of what you might have. Like if you've been to like Amon Giri or Blackberry, like things just happen in the background and you never see them unless you're supposed to see them. So somebody, a concierge is going to come up and be very friendly with you, but you don't want to see the person doing the laundry, you know, going and I that it just happens invisibly. That awareness is something that you can that AI can really help you with because it can detect when guests have left and you know, even shut down power to make to save uh cause you know energy costs. Like there's a lot of really great places to play, but you want that face-to-face to be human. And I think that's going to be the biggest driver of what like the the really ultra luxury places provide.

Michael Russell 16:49

Hey there. This is Mike and Nate jumping in with a quick favor to ask. If you're enjoying this show, would you just take a moment and go ahead and leave us a five-star review? Your reviews really help us grow our listener base, which in turn allows us to bring on even more high-qualified guests who share their actionable insights and strategies that help you succeed in your hospitality journey. So if you've gotten value from this episode or any of our past episodes, we truly appreciate your support. Tap those five stars, follow the show, and share it with someone you know who's looking to up their game in hospitality or investing. Thanks so much. And now back to the show. So you're you're referencing, okay, ultra luxury. And to your point, I think human beings crave human interaction and a machine or AI or robots or whatever, they can provide convenience, but they can't provide human interaction to the same degree. It's like when my wife is having a bad day and the kids are driving her nuts and she's afraid and she wants to tell me about how her day is, I'll be immediately like, okay, well, here's what we need to do to fix this. She's just like, well, well, well, no, didn't want the solution set.

Ari Smith 17:51

Just wanted to be her.

Michael Russell 17:52

I just want you to hear me. I want you to empathize with me.

Ari Smith 17:54

I want to feel it only took me three decades to learn that, Michael. So, you know, get it.

Michael Russell 17:58

Yeah, I don't think, yeah, in this lifetime, it probably won't happen. So, you know, but what I want to hone in on here is what you're talking about, like, you're a data scientist, you're immersed in this, and you are analyzing this from a macro level. But what about the individual that let's say is graduating from short-term rentals into purchasing hospitality assets and is recognizing that there's um boutique hotel opportunities where maybe there's um an efficiency gap. How can one on a very basic level start implementing some of these principles into hotel investing now?

Ari Smith 18:36

Sure. So let me just make one note about something. I think that places like five-star hotels, they're at a huge disadvantage relative to people who are uh, you know, like let's say just starting out and want to, you know, just invest in a boutique space. And the reason goes back to how enterprises of any kind function, right? Their scale and their their efficiencies come in many ways from like repeatability or reusability of capabilities. So they'll have like one management system to manage, you know, a thousand hotels worldwide. And that saves them from each one of those groups and one IT center to do handle all that work instead of each one of those places having to manage and maintain their own. So that's efficient. But the problem is when you want to make like whole-scale upgrades to services, you don't say, all right, well, we're gonna change this. Ritz is going to get all the great AI and all this like uh you know uh automation and new capabilities, but the one in this place is not like they have to do things across the board because the you lose those efficiencies. Whereas if you're running a boutique hotel, it's sort of baked into the plants, a feature, not a bug that it is unique. And that uniqueness means that, yeah, you do have to house a lot of the capabilities in that specific location. And I mean, virtually there has to be a set of services that are targeted just that location, but it's far less painful when you don't have to do a broad based implementation to maintain that sort of homogeneity or like that you. Uniformity that these large enterprise uh you know property management groups have to have to sort of adhere to. So I think it's a disadvantage, it's a weakness. And if you're getting into the space, there is the the tooling is getting so easy to work with that you don't have to have a multi-million dollar budget to implement incredible technology advantages. You just have to have a clear vision and an understanding, or and and of course, the right uh you know, software engineering and data sciences group that understand how to use the tooling that's out there. But the things that you can do in this day and age are mind-blowing. With like you can do so much with so little, like from a castle point of view.

Nathan St Cyr 20:36

You've used the word tooling a couple of times. Can you give some specific examples of tooling?

Ari Smith 20:41

Sure. Uh I'm really just referring to the the types of software capabilities that one might want to access, typically in a SaaS format. So you'd have like software as a service where you there's a set of APIs that one set of APIs maybe it provides um a customer profiling for hotel. So hotel maybe pays some monthly fee, X number of dollars a month to access this service online. And that service has maybe is able to tie into some of your customer data or ties into your CRM through APIs, application programming interface, just a way for software to talk to each other over over over the network. And in in so doing accessing that customer data, it can make recommendations to the hotel. So they're paying for this set of tools that do the work for them. So they didn't have to build the customer profiling engine, they just outsource that, pay a monthly fee to a company that's already providing it, and they get all those insights. It's very lightweight. It's just like the way that a number of of you know of folks who are in the the field of agentics, they're you know, agentic AI, they're they they're talking about how the businesses of the future, like the future of billion-dollar company is gonna potentially have like five people in it because everything's gonna be digital employees, like these, these AI agents. I think that from that point of view, you know, you want to be thinking, all right, well, how do we take advantage of these capabilities? If you can build a multi-billion dollar company with just a few people, let's say a year or two years or three years, whatnot, obviously incorporating those like a lesser set of technical capabilities is is a cakewalk. It just used to be expensive, but now it's it's really, really uh cheap. And the the types of services that are available for smaller for boutique owners to uh to utilize, they dwarf the best capabilities at any multinational uh like hotel chain that any of you could think of. Just because I wouldn't know if it was going on.

Michael Russell 22:30

Like I what you're saying is the little guy's got an opportunity here.

Ari Smith 22:34

There's a lot of talk about huge opportunity.

Michael Russell 22:36

These big companies that are gobbling up all these independent hotels and they're creating so soft brands, but the loyalty points means that you know you've got all these people that are now just sticking to the Marriott brand, for example. And as an independent hotel owner, you're like, well, how do I compete against that? But what you're describing gives me some optimism that, well, there's a huge competitive advantage for these reasons that you can start applying some of these unique experiences based on AI and data that you can provide that the the big companies just are not set up to deploy at scale. Let's talk about some of these things as it relates to your property. Maybe you can give us a quick overview of your project, what you're doing, and then share with us how you're applying some of these tools that you're you're describing for your own specific project.

Ari Smith 23:22

Sure. Um I just want to say one thing about what you just said though. It's it the disruption is the the norm. It's we're gonna be in a world of, and this is an irreversible trend of continual disruption. So being a smaller operator, being more flexible and nimble is going to be an increasing competitive advantage. I don't just think that they have a shot to compete. I think they're in a better position to compete now, and that that is going to get more and more become more and more of an advantage for them at that these large chains are going to have to essentially disaggregate and operate as like sort of local microcommunity type of of enclaves because that that like sort of um industry 3.0 was like sort of mass uh you know uh automation and mass manufacturing. Industry 4.0 is mass customization, you know, it's like the one, the the the one to many. So I can have one system that can provide highly customized products and services to large-term peoples. Enterprises are not like hook like multinational hotel property owners, they're not equipped to do this, and it's gonna get harder and harder for them. So that I just wanted to make that point. I think it's the best place to be, would be an independent like operator at this point. Uh, so what we're doing at balance is like we're we're this is like sort of our template. So we consider balance farms, which is the property um my my wife and I are developing here. Uh, we think of it as sort of an investment in what we believe is gonna be like the next evolution of like high-valued real estate. So it's it's 550 acres, it's a private retreat here in the heart of Vermont, here in the Northeast Kingdom. And we're trying to basically pioneer sort of a new model of hospitality integrated, like resilient living. And it's designed for people who understand that the future of luxury, at least who align with our belief that the future of luxury, it's not just about the amenities, it's about like control, security, self-sustaining value, helping people have purpose-driven experiences. And that's why, as a farm concept, well, we'll call it balance farm, but as a microcommunity concept, we're trying to blend like the best of what you get from boutique hospitality, from high-end real estate, and uh, you know, from the perspective of like really long-term sustainability. So we don't want to, we're not talking about rejecting technology. We're talking about sort of curating a world where the technology serves the people as a tool and not where the people are serving the technology. It's it's where we want to be thinking about where a place where human craftsmanship and nature and intelligent infrastructure sort of creates a seamless experience that really remains valuable no matter how unpredictable the future is. And so that's why, from the investment point of view, it's not just a luxury development in any we come, not just balance or I think any microcommunity that's thinking directionally in the way that we are, it really is this hedge against the the volatility of traditional real estate. And these the market is just being so shifted around by all this AI that those trends that are going to shape the future of real estate, um, they really are creating this opportunity that I think is is truly unique. So it for me, that to me is the unequivocal answer to the chaos that's coming um and that's already here and that's increasingly coming with AI. And I think it's it's where all real estate investors should be looking very heavily.

Michael Russell 26:32

All right. So I want to simplify this a little bit from a guest perspective. So, what are some of the attributes of what you're developing that are attractive from a guest perspective? Why would someone choose to stay at your location? What are they going to gain from an experience, from uh amenities, uh, from value? Walk us through what you're developing.

Ari Smith 26:53

So it really is about curating this space to the needs of the guest. And so privacy, security, like an exhaustive focus on like guest experience. This is it and hyperpersonalization, this is really what the focus is. It's it's designed to be like a an AI minimal environment that very heavily leverages AI. Like we're leveraging AI and technology to provide guests with the most natural experience possible. It's so like what you were alluding to earlier. Like, we want the AI to tell our staff, this person is, you know, mentioned that they're interested in in birds. And so we want, you know, we want to tell let's auto, let's go ahead and recommend that we take them on a bird watching tour. And it should have fit in in this time with the schedule that we already know. Like all the the grunt work is going to be handled by the technology, but it's going to make those recommendations to to our staff so that they're then those that staff will make the recommendations to the user. So it's about the the property sort of conforming to the needs of user, whatever it is. The only commonalities is that we're in nature, we're in Vermont. So those are the kind of experiences that one should be expecting to have. But beyond that, we're totally focused on not having a rigid set of constraints that define what you can and can't do here, because we've had people come here and they just wanted to pick apples for like we have like about a thousand apple trees and they just want to come pick. It was really strange to us, but they said, hey, we want to pick apples and then you want to make apple cider out of it. And so we had an apple cider uh company come here and they're processing it, it'll be ready for them in like two years. And I think that but these kind of we don't want to put any constraints on experiences. What we want to do is we we we try to provide a set of sort of this is what people like to do, and here's what you might like to do. But if you have particular things that you're interested in, let us help design an experience for you. And that's what I think it really comes down to is making sure that the property is there to serve the customers. Just like we want AI tools to serve businesses, we want the property to serve the customers. And as soon as you invert that, you become, I think, stale and uninteresting, no matter how exciting the experience is that you.

Michael Russell 29:00

Well, I've got I've got your website pulled up here and it's balanced.farm. And I'm looking at the map here. And so, you know, you've got listed here, it's 543 acres. There are nine cabins, and there's a wellness and fitness center, there's a farm, a working farm, there's an animal sanctuary, there's hiking trails, there's areas for snowmobiling and ATVing.

Ari Smith 29:21

Yeah, some of that is developed, some of it is still under development. Like we have like these, we just got these electric snowmobiles in from France. They're like snow dirt bikes, and so that's a really cool experience. But a lot of the times, like, you know, a lot of the stuff that we're doing is still under development. This is a multi-year project that we're racing forward. So we just got our fourth space built out of the nine. It just did and um we're just integrating a lot of like the smart tech into it. And now we're we're gonna be building another sauna. So there's still a lot of development to do. That's more of like our vision for where we where we want to go. And that isn't even remotely complete. There's a lot of other things that are happening that are sort of behind the scenes, but yeah, but that's what we're driving towards.

Michael Russell 29:59

Okay, so the ultimate goal then is I mean, nine cabins is it's very small. And so that's gonna be in very intimate settings. So is the idea to have like a retreat setting where perhaps a group of people that already know each other would go and stay there together? Or is this being tailored to individual guests that will look up your location and want to go and have an immersive experience in nature?

Ari Smith 30:22

So our current uh our current business model is predicated on the the notion that we'll have like ultra-high net worth individuals will buy their own private spaces. So what you see on the site is what we're gonna be renting out, but because there's so much land that we have like a lot of infrastructure, we spend a lot of money to develop like the elect electricity, um, like the electric infrastructure, plumbing, sewage, internet, um, and so on, so over, like running fiber. So it's we we plan for the place primarily to be where, like I said, people can can build their own space and then we can rent those out in sort of like a hybrid model, but we're got those nine cabins, that's what we are going to own. The rest of the space is going to be designed for us to sell in like sort of like like discrete uh pockets that we'll manage for people so they can come stay there 24-7, 365 and have all the services, like food and entertainment, all the things that they'd want, or stay there one week a year and have us rent it out for them and then share some of the the revenue that's derived from that. So that's that's the the part that's not depicted on the site because we're we're still figuring out how we want to deal with the master plan and how we want to zone some of those pieces. And in Vermont, that zoning can be a little tricky. So this is what we have, this is what we know. And we know the only thing, other thing we know is oh, this is what we're gonna do, but exactly what will be most appropriate, where can we get power and resources most readily, and so on and so forth, providing the same isolation, building out roads. So that's what the sort of like the under the covers, that's really what the model is, is to have sort of like these owned houses where people can build their dream places here and we'll just manage and maintain it and secure it for them.

Michael Russell 31:56

I see. Yeah, so your your background as a technologist, you successfully built and sold your own company, I believe, to a subsidiary of Microsoft. But throughout your career, you uh you mentioned to me that, or you mentioned to us that you have raised millions of dollars. You have experience raising money. I'd like to know with this project, how have you financed it and what are some of the lessons that you uh learned earlier in life that you're applying for this project?

Ari Smith 32:25

So for this project, my wife and I have self-funded um to this point just because we want to have to like kind of complete control, at least initially. So we bought the land, uh, we built out some of the core infrastructure. And you know, it it we we only really reached the point, uh, I guess it's probably about two months ago, where we started putting together sort of a formal like business plan to sort of provide insight for outside investors. We haven't actively started seeking them out yet, but it's it's in our like sort of field of vision. It it it's I find it a lot easier to just let those investors, you know, come to me because just through the work I do, I you know when I'm giving like lectures or talks or you know, uh like really interesting like podcasts like this, like people find you that way. So I think that it, you know, like finds like if they're if somebody's interested in what we're doing, they somehow find us. We were meeting up with this other, this like really large, you know, uh uh a real estate investor uh this weekend and going up to to the Hamptons with them to show them another property that my wife is involved in and whatnot. So we figure we'll probably find those people organically who are interested in and have some of the same values and and beliefs that that we do about the future and and the future of hospitality.

Michael Russell 33:38

How did you find this property? How did you find it? You know, like a lot of our folks you're they're looking for opportunities to invest, and there's a lot of places. This is in Vermont, it's probably seasonal. I guess I'm curious how did you find it and and what were the compelling reasons why you chose to invest in this location?

Ari Smith 33:54

Yeah, so there's there's a number of reasons, like there was a number of pragmatic reasons, but this was during COVID. And I just did an analysis of like what is the the most undervalued um you know place with the greatest upside potential. And this is when we were living out in California, we were living between uh our place in LA and our place in Mojave. And it like every when I every time I did this econometric analysis, I came back Vermont, Vermont, Vermont. Like because there's so few people here, it's so undeveloped, it's just shockingly beautiful. Nobody's ever come to Vermont was like, oh the dump. Like it's a beautiful, unless they came during mud season, which is like a couple of weeks of of chaotic mud, which I didn't know about until my first year. I'm like, why is my car in four feet of mud? But outside of that little break point, it is a stunningly undeveloped space. And that that there's not a lot of opportunities to find that, um, especially in something that's so geographically uh attractive. There's Montreal, where those people, those folks come down, a lot of money comes down to ski here. You got New York, uh, Boston, like it's just a connected, like there's a a lot of capital and resource right around Vermont that is looking to deploy capital to this space, which again, we tested out this market and we're shocked. So it came down to the numbers, but once we actually got here, we bought this place side on scene, by the way. We just, you know, just it was just down to the financials. But we got here within one day, we were like, this is where we always wanted to be for our whole life, and we just didn't know it. Like I'd always been in New York, uh, you know, LA, Miami. I lived in in Austria and in Shanghai, like all over the world, this was the place I was always meant to be. So it it was wonderful that it aligned with our sort of emotional centers, but it was it was the best sort of economic decision given that we knew we wanted to push heavy into hospitality future. And obviously, I I mentioned this earlier on society is crazy, you know. As from a COVID point of view, they I don't know if I'm overstate, but they barely knew COVID happened in Vermont because people are so it's so rural. You don't I I have I don't have one neighbor for like two and a half miles in any direction. Like there's a couple hundred people in this town. Um and so they were not impacted much at all. And when you think about what's gonna be happening in the future with automation, a place where where the people are primarily like very skilled, like trades, trades folks and and craftsmen, like they're not gonna be affected or rocked by this automation, uh, you know, acceleration, this AI curve, because most people here don't even know what ChatGPT is. And that's a good thing because they have durable skills that will survive and thrive, even when that you have to start moving into more of a barter commute economy. So that's what made this place so unbelievably attractive to us. And it's more attractive as things get more chaotic. A place like this becomes more appealing, I think, from an investment point of view and from a living like lifestyle point of view. It's exactly what I'd want for my family. It's exactly where I'd want to deploy capital.

Michael Russell 36:46

I think what you're describing, there's a lot of different types of assets that one can invest in from a real estate perspective. But the thing that most people agree on when you're looking at hospitality, it's not just the financial component, it is a passion project. And clearly uh you've got passion written all over this. But I do want to touch upon the economic side of this because a lot of our listeners are probably curious like, is this economically viable? I would love to own 500 acres in Vermont where there's apple orchards and be able to provide people these immersive experiences to ride snowmobiles and you know, go bird watching. Okay, but can I make any money? Can I make money from this project? A few weeks ago, we had a guest on that was describing uh a little bit more in depth the economics of experiential lodging and talking about how ADRs are actually really strong in this area. But can you specifically for your your your project here, can you touch upon what are your expectations with average daily rates and financial returns?

Ari Smith 37:41

Yeah, so I'll give you the the data based upon the preliminary testing we did. Uh even before being remotely completed, like we we did a test before we had even finished the build-out of two of the cabins. We were at five figures on two cabins over the course of one month. And that's ridiculous. Like that that doesn't make sense, except when you realize that people will pay a huge premium for peace, isolation, connecting with nature. Um, and and still, and of course, the the little kicker is they still have to be connected. So we spent a lot of money to make sure there was strong infrastructure. You're always online because there's again, there's no services around here really. So everything that we have here, we had to run all the lines and trench everything out ourselves. You're right. It's definitely a significant investment. Once you make that investment, though, like the return on it is, I think, quite straightforward. We've had offers for, and actually, we already have booked these for next uh September for people to rent out as an event space. You can make all, you can cover all of your cost for a month with a one-day event. And this is not unique to us, by the way. This is something that I think is unique to these type of microcommunities that are isolate. We see the same thing out in Joshua Tree, which is from at least from a like a weather perspective, our method is like polar opposite from what we have here. It's not even also necessarily so seasonal. We have people who want to come snowboarding, skiing, um, then that's during like the winter seasons and then spring, you know, they want to do hiking and summer the ATVing. So there's always things to do, and that's where you have to like look at the economics a little bit differently. You have to be prepared to provide uh like a an all-year-round experience, and you have to be able to be adaptable because it's totally different providing, you know, skiing and like snowmobiling services versus you know providing hiking or ATVs or ATVing and like or hunting, like all of these types of things, they're different. But if you're adaptable and you're you're really focused, the opportunity, if we're really focused on the guest, the opportunity to make money, I think that's actually the easiest part. It's the development and sort of swallowing the initial risk that you have to kind of get behind. And of course, you have to have you have to be passionate. Like you said, if you're not really passionate about this, like I think it's a brilliant investment, you know, but it's you have to really be thinking from a from the perspective of a strategic investor, okay, can I Make money on us in the short term. Definitely.

Michael Russell 40:02

Well, let's say I wanted to stay at your spot. What would I pay per night? What would you expect?

Ari Smith 40:07

Uh well, I know we we were we were renting we initially rented for renting out space for 350 and then we tried 500 and then we tried 750 and it we didn't find a point. We just stopped at 750 because we didn't find a point at which that was just for one space, right? Uh for a night. And because they then the cost, I don't want to say it doubles, but the people who spend that kind of money, they then spent a lot on a meni. So we had a they wanted to go on like a deer watching event. They want to go like find some deer. So we had like our our naturists like take them out on uh you know a deer hike and they wanted to like ride on a TV, so they pay for that. They wanted like we've made all the food is made on site, so we like you know, bake bread that morning. Like they pay, people pay a lot for that type of experience. And when you start adding up those numbers, it's crazy how much you make again. This is a new industry to me relatively, but my wife is like, trust me, and she undersold it if anything. Like you can charge, you know, $200 for breakfast if it's all like handmade, and oh, we got the apples off of our trees, and the cider was pressed from this orchard, and we took, we've been in pick, we had our our kids picking fiddleheads, and we cook that into like the tofu scramble with like the like all those little things, they just ink they just push the amount of money you could charge. And again, it doesn't come down to money, but you can charge a huge or only money, but you can charge a huge premium for providing exactly those types of things that aren't automated, that aren't like, oh, we got it from the store, and like none of that.

Nathan St Cyr 41:30

We don't look anything like who develops the systems and processes to execute, like you just threw out a lot of random shit. So, like in my mind, I'm going, yeah, that's great, but like, okay, this guy wants bread with tofu scramble and blah, blah, blah. And this guy wants to go fucking hunt an elk. Like, yeah, like those are two very different things to me. And I'm spinning, like, huh? Well, who coordinates all this? And who, like, to me, that's what we find is an extremely, you know, if you're not doing it yourself, that becomes an extremely costly part of hospitality.

Ari Smith 42:09

Okay, so you're right, it is a total pain in the ass, unless you're like my my wife is married to me. This is the one area where I get to shine, right? I am useless with hospitality, except in this area. Like I have developed uh like an agentic system that actually profile the customers before they come in, and it continuously like augments their experience. So it knows ahead of time, oh, they're gonna like this kind of food, and it figures out what's all the ingredients, all the stuff that would take so much time before. Because my wife had to do this manually before we met, right? Um, and she had her assistants do it, so they would like go through exhaustive, painstaking interaction with the customer. We've been like our agentic systems will uh will profile the customer everything they want, figure out, oh, this is the ingredients, and then it's just a matter of having a great network of resources that can be tapped into and the the agentic system, I mean the future versions of what I'm platform building. Survey or something? Like oh no, it's much more interactive system, like an agent. So think of like uh something like uh simplified descriptive chat GPT, but with a wrapper around it that allowed it to have a set of instructions like heuristics and business rules that told it this is how you're going to behave, and it and us along with a set of tools that it could access to carry out actions. So our genetic system will go and and profile the customer by talking to them. It can actually talk to them over WhatsApp and say, hey, are you having allergies? What kind of foods do you think you like? Blah, blah, blah and it's doing all this work. And the customer's talking back to them. It could be through multiple channels. And again, we're refining this platform. So it's not, I don't want to pretend like it's complete, but we did some testing, uh, some private testing, and it works better than you can imagine. So it'll get, it'll build all this information on what experience they want, what food they want, and then create, do the grunt work. Here's the recipe list. So then sends to the maid automatically, who also does like the the housekeeper will go and get the do the grocery shopping, set handles that automatically and it specs it with. Time out, time out, time out. I gotta ask. Yeah.

Michael Russell 43:58

This sounds incredible, what you just described, okay? Like this the system that you so I just want to do. It's my passion properly developing this this AI system that I I was imagining a survey that goes out to a guest and they have to go through this process of filling out things, and they're like, screw this, it takes forever, I'm not gonna fill it out. But you're describing some automated thing that knows and profiles them. And you're you're saying that you're developing this technology right now?

Ari Smith 44:23

Yeah, I've I've probably about six weeks from the full MVP, but the proof of concept that we tested with some of the of the guests, it works shockingly well. Even and I personally built it.

Michael Russell 44:38

Yeah, personal needs. But what I'm thinking is like, holy crap, like if we knew exactly what our guests wanted, even our hostile guest, right? And it was you talked about early on in the podcast how there's technology that gives the small guys competitive advantage because they can implement these things, but now technology has evolved where it's not so cost prohibitive. And so on what I'm wondering, for even from a business model, for forget the micro resort for a minute and just the technology you're developing. Is this applicable where it could be packaged and sold to operators that want to be able to implement a system like you're developing so that they can go and offer these incredible experiences?

Ari Smith 45:13

Yeah, so uh it's funny you didn't mention that. So uh there's this venture capitalist that uh is long-term friends with my my wife and I, really great guy. And when we told him what we were doing, he's like, you he says, when you have this ready to demonstrate, let me come out there, I'll stay there for one night. If it does like half of what you're talking about, I'll raise you like you know 10, 20 million dollars or something like this. Like he's like, trust me, there is a huge appetite for this. He says, You could take this kind of capability, it's it's really smart property management, it's not just like smart home management. So it's it's so much more than I describe. It is a system where you it'll tell you, you can say, hey, what should I have for dinner tonight? And because it's already on board with you, it's already like done this ingestion, it knows you have these allergies and this kind of food you prefer. What kind of if it you know it can you can say, hey, you know, what can I watch for for for what movies are available to watch tonight? It can go, it'll find the right movies for you, throw them up on the screens, or you know, uh show you pictures of like the bears in the background that were that were like walking around at like five in the morning because it knows that you'd like to see that maybe in the morning, it'll show that to you on the screen. So it's a proactive system that's helping manage entertainment, your security, even like access the camera. We just got up did a successful test of this three weeks ago. You walk up to the property, the facial detection recognizes you from your photo, which you was part of the onboarding process, and from the deep dive that we automatically do and can admit you. You don't even have to like type in a code or talk to it. It just it recognizes you're walking up and say, Oh, hello, Michael and Nathan. You're we you're you're booked here for for three days. We're ready to go. Here's the events they have planned. You know, door access, would you like another access code? Like it is designed to just work as your virtual find you from a marketing standpoint.

Nathan St Cyr 46:54

Yeah. So, like based on your behaviors in that you've communicated as a family unit, maybe, um, via social media, all the social media platforms. Can it go, okay? I'm finding my way through the system and going, oh, this person obviously has an extremely high net worth. They like customize this, they're very they love these experiences. They would be a great person to market to, and then boom, they get on their social media platform this experience.

Ari Smith 47:28

So, okay, uh this is funny. So, first of all, the system that that's the the the smart property management platform we're calling Peapot. And the answer to the question that you had asked, Michael, is it does look like we're going to probably commercialize and end up reselling that to hotels because it's just so logical to deploy this to hotels, uh, you know, like community, like housing communities, uh, apartment complexes, luxury stays, et cetera. Now, the Nathan, the system is designed to data mine customers. So that's like, okay, you're gonna stay at the place, it'll take your information, it'll take whatever it knows about you and try to find you on social media and get information so it can build this profile for you. What you're referring to, though, is actually a different business than what my wife is about to launch, and she's already got about, I think, a couple hundred uh people on this, but it's called No Vacancy Club, and it's designed to crowdsource customer acquisition. So it aligns brands, in like travel influencers, and properties. So a property like ours would say, all right, um, it would go onto this platform and it the it would say, all right, well, this is the characteristics of your property. Here's the influencers who are looking, they're looking for content, property is looking for exposure, and brands want visibility to customers. So the brands are like the economic tier of it. So the the matchmaking engine, which is of course AI that the art of this, it says this property would be great with this influencer, and this brand is bidding essentially to be included in the experiences which our AI will tell that influencer based upon data mining your profile. Here's the best way for you to create the experience on balance that will get you the highest visibility, most clicks, uh, you know, most engagement. And so we tell them this is what you should do. And it's of course it's recommendations. And if we want to do brand integration, then there's a direct revenue piece that's shared with the influencer and the property. So that piece that you're talking about, that's a proactive engine that's going out and looking at influencers, at brands, and potentially at customers as well. But there's a bigger scope to that piece. So I think for the time being, the first release of it is going to focus on that trilateral alignment. But the goal is to say, I don't want to pay some third-party marketing engine, like 30% of my revenue, just for people finding. I want people to find me organically and I want them to appreciate what we're doing on as depicted by third-party travel influencer experts who really took it through its paces and showed them all the most wonderful. And that's another aspect that you don't want to digitized, like AI gives you that great assistance. Say, here's the best experience for you to engage in that will get your customers' view, that the property loves, like gets everybody aligned, incentives aligned, but it's still a human-driven activity. It's not like a digital influencer, like an AI influencer that faked this activity. It's somebody really doing it. And this is where that delineation comes in. Because if you want to know what's going to give you the most sense of intimate connection to an experience that you're viewing that's going to make you want to stay at a place, it's the things that the people describe, like, oh, it's smelled like the things we can't digitize effectively. It's smell like this. It felt like the grass felt this way on my feet. The cold air was so invigorating, you know, when it blows the snow blowing, all the things that AI can only simulate in like in form, but not in in reality. Like it, the humans understand that. So that's where this sort of like this no vacancy club is coming to play. So we are, of course, have thought about that, but and we're building that platform. That's sort of the other project that she's heading up. Um, we're gonna be launching that soon. And that is uh definitely a public service. Peapod, I haven't created the business plan around it yet, but again, I have some confidence that people are going to want to use it. And worst case scenario, it's making what we're doing like so much more efficient anyway. So end up reselling it or not, it'll it'll be a value driver for us.

Nathan St Cyr 51:02

Okay, so Ari, as I hear all of this and I I fast forward a little bit, like I'm fast forwarding a little bit, going, okay, it feels like this levels the playing field for this access for everyone. Like the things that we go do to get competitive advantages now that we think outside the box and we go, we're doing these things and other people aren't, right? But yet now all of a sudden everybody has access to the same stuff and the same power that makes it more efficient and more effective. So where then is the competitive advantage that's your ability to execute the like the feeling that's generated then in in real life? Like, where's the competitive advantage?

Ari Smith 51:54

Let's assume that everybody has access to everything and that it's effectively free, right? Yes, like in the same way you back in the 90s, you would pay for uh Microsoft Word, right? Now I can just go use Google Docs, it costs nothing, right? It does everything that I needed to do, uh, more or less. So where is the the competitive differentiator? Where's the where are the unique value drivers? And that's comes back to the point I was mentioning earlier on, where I think hotel investors to to sort of future proof their investments, like against all this incredible capabilities coming, you have to think about what are the best strategies that I can use to provide differentiation. So you have to find locations. Like locations are everything, like AI resistant locations, like where as urban real estate, like the demand for it is just gonna completely erode. Like remote work is gonna become more and more dominant. I don't, it doesn't matter what people say. It's just too efficient or rather too inefficient to not do work that could be done remotely to do it that way. So investors need to be targeting like sort of regional, like resort hubs, exclusive islands, mixed use assets. Like that's a differentiator because you can't change the geography of your property no matter how great your tech is, right? And you have to couple that with an integration of like really interesting long-term stay options, at least that's what we believe, right? So that those hospitality assets that both by virtue of the their sort of like their underlying premise and their geography, that they're able to offer sort of residency or extended stay options, those are gonna hold stronger demand too, especially when the next chaotic event like COVID 2.0 or mass chaos from you know uh unemployment, whatever happens, like that that ability to offer extended state options is going to be a huge revenue driver and it's gonna be a unique competitive advantage. It's also related to where do you go back to the first point? Where is your location? If you're rural, if you're uh you know away from that those urban centers, then I think that's a great opportunity. And then of course the differentiation in terms of land as like a hedge, it you you can't you can't really AI doesn't devalue hard assets, you know, especially related to like unique locations. And because you get that sovereignty, that sort of experiential luxury, those are the unique assets. Like, where is it? What can you do with the like where is the land? What can you do with the land? And what type of opportunities for staying do you offer and experiences do you offer to customers who want to, who do want to uh well, to people want to become customers.

Nathan St Cyr 54:16

Yeah, makes sense.

Michael Russell 54:18

I I think that one of the things that you cannot replace is that humans are emotional people, but what I'm recognizing is it's less so about just having a nice space, it's curating the space so that they feel important. And that's one of the most like powerful human emotions is the feeling of importance. If someone like in our vacation rentals, the very most basic thing we do is we give them a little thing of flowers and we have their names written on it in a custom handwritten card that just says, like, welcome to the Fleetwood Villa. And it's like the amount of compliments that we've oh, we appreciate the card, like the connection that is occurring. That's just a simple tactic that people are doing. But what you're describing is like next level. Um, I'm really excited to uh stay in touch with you and watch your journey, not just from your micro community that you're developing, but the technology that you're describing. This has been an excellent introduction, I feel like, to what you're working on, but there's probably so much more.

Nathan St Cyr 55:16

No, I agree with you. This was a great intro. Um, excited to to watch the journey and and also it's kind of like a you know, a launch pad, right? This conversation is a launch pad into just a lot of other avenues that that was are extremely valuable for us to consider and our listeners to consider. So appreciate it.

Ari Smith 55:37

Yeah, no, it was absolutely my pleasure. Thanks, guys.

Michael Russell 55:39

All right. If our listeners wanted to stay in touch or otherwise connect with you, where where can they do so?

Ari Smith 55:44

Well, I I don't have any social media, but I am on LinkedIn. Probably better to just go to, I think um, we have uh my wife's gonna kill me for this. I think we have an Instagram for Balance Farm, or you can go to my website and reach out to me there at on my my AI company is uh fatrat.ai. Um, so yeah, you can reach me there or just find me on LinkedIn. My wife manages my LinkedIn. So if you message about this, she'll make sure that we get back in touch with you. Always looking to hear from people who have interesting other ideas. We don't necessarily know that we have the best ideas, we just have the ideas that we think make sense, and we're we just want the best answer. We don't really care where it comes from. So all interesting ideas and folks who want to ask us any questions, we're happy to chat. Love excellent.

Michael Russell 56:28

Great. All right, listeners, thanks so much for tuning in. Uh, this is another episode of the Hotel Investor Playbook, and we will be back next week. Aloha.