How to Get Brokers to Send You Deals | Hunter Johnson E58

Most hotel investors struggle to get brokers to take them seriously. The result is the same handful of buyers getting the first look at every good deal while everyone else fights over leftovers.

In this episode, Michael sits down with Hunter Johnson, President of Investment Sales at US Hotel Advisors, to break down how brokers actually decide who gets deal flow. 

Hunter shares what he looks for in a real buyer, what turns him off immediately, and the simple behaviors that make brokers want to send you deals before they ever hit the market.

You’ll learn:

• What separates a “real buyer” from a time-waster
• The signals that instantly increase your credibility
• How to build relationships that get you called first
• Creative ways to structure deals when traditional debt won’t work
• What lenders want to see from first-time hotel buyers
• When SBA loans make sense and when they don’t

If you want more brokers sending you legitimate opportunities, this episode shows you exactly how to get on their radar and stay there.

Follow and share the Hotel Investor Playbook so more people can learn how to invest in hospitality assets the right way.

About Hunter

Hunter Johnson is the President of Investment Sales at US Hotel Advisors, a hospitality investment-banking firm specializing in the sourcing and structuring of debt, equity, and investment-sales transactions for hotel properties across the U.S.. Drawing on a background that includes commercial real estate, lending, finance, and property insurance, Hunter is uniquely positioned to advise clients on complex capital structures and transaction execution. His firm excels at securing non-recourse financing and raising sophisticated mezzanine or preferred equity, often for assets facing challenging circumstances such as low debt yields or rebrandings. Hunter strives to create trusted and lasting industry relationships while utilizing a competitive bid process to advise on the sale of various assets, including boutique properties, to yield above-market sales prices.

Connect with Hunter

https://ushoteladvisors.com/

https://www.linkedin.com/company/us-hotel-advisors/

https://www.linkedin.com/in/hunter-johnson-2778b120/

Connect with Michael on Instagram or LinkedIn.

Email Us at info@hotelinvestorplaybook.com

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Transcript

Michael Russell 0:03

The Hotel Investor Playbook, your guide to building wealth and freedom through hotel and hospitality ownership. Welcome back to the Hotel Investor Playbook. I'm Michael Russell, co-founder of Malama Capital, and your host. On this podcast, we talk story about everything you need to know to make money investing in hotels and in hospitality assets. Today's guest is Hunter Johnson, president of investment sales at U.S. Hotel Advisors, a hospitality investment banking firm that helps owners and developers structure debt, equity, and investment sales transactions across the US. He's been on every side of the table, lender, broker, and even insurance pro. So in today's episode, we're going to cut through the noise and find out what's really happening in the hotel world, where we are in the market cycle, and also how smaller investors can compete in an environment that often feels dominated by the big players. So let's get into it. Hunter, welcome to the show.

Hunter Johnson 1:07

Good to be here. Yeah, super excited.

Michael Russell 1:10

I want to start with the question that I think every investor is asking right now is where are we in the hotel market cycle?

Hunter Johnson 1:16

What a good question. I think we're past the bottom and we're moving up. Obviously, the winter this last first quarter of this year was really tough for a lot of people. Uh, there's been a lot of fear in the market. Interest rates have been high. We had this big bump, especially a lot of leisure markets that I work with post-COVID, and then kind of the cliff fell off. And it's like, hey, where are we? What's real today? Because we don't have, we can't look at the past. Like, can we go back to 2019? That's too far away now. So it's hard to know what's real. There's a lot of scared money out there, but I think the summer settled people down. Um in a lot of markets and a good recovery. And now there's kind of investors are coming out and looking for deals and opportunities, all albeit cautious, very cautious. And we've got some some some interest rate relief, but we're going to need some more and a lot of things, tariffs and everything's uh affected this business. But I I guess to make a long story short, I do think we're on the upswing. I think this is for sellers to get a little more realistic with with pricing and understanding like the market, they're not going to get yesteryear's pricing. Interestingly enough, there was a lot of kind of gross revenue multiplier buyers out there historically, and they were looking, hey, what's is it is it three times, three and a half, four times gross revenue? If you got a million dollar property, it's worth three and a half to four million if it's in a good market. But that's not the case anymore. And and a lot of it's just out of necessity because of bank debt. Lenders are tighter, their debt coverage ratio goes are going up. They're one one one and point three five as opposed to one and a quarter now. So these guys are having to look back and they're like, okay, well, really, what's our cash flow? What's our cap rate? And it's kind of forced to become smarter. So in ways, it's made it a little more competitive or kind of forced down pricing for sellers where they're not just getting gross revenue multipliers, they're really having to focus on their cap rate upon sale, especially when we're talking boutique, smaller properties. Historically, it was more maybe gross revenue. And now, you know, you need to have a strong cap rate and you need to kind of think about that if you're going to sell ahead of time and kind of forecast it and plan for that.

Michael Russell 3:33

Do you see that buyers or sellers have more leverage right now?

Hunter Johnson 3:39

So buyers. Yeah, buyers for sure. It's a buyer's market. It's not that simple either. I mean, it depends on the deal. There's a lot of deals that aren't cash flowing, and it's like, oh, well, if you get this, do this big renovation, they'll start to cash flow. And the buyers, they're being a lot more cautious and you're not getting those deal done. But when there are more deals that that do have in place cash flow that are desirable, then it kind of flips a little bit. But we just ran a process of call for offers and a really cool, unique property in U Ray, Colorado. It's a hot springs with lodging. And for a small property, we had almost 100 confidentiality agreements, and we've got for a call for offer, six offers. And this is in a spot where it's probably speaks more to your base, where it's not an institutional guys are coming in and buying a 23-room property, but it's it's it was it was a pretty good show. And so when you find those diamonds, people are kind of waiting for the right deal. If you find them, savvy buyers are looking for similar products. Everybody wants something with in-place cash flow and also upside. And but I they're the few and far between.

Michael Russell 4:51

So I saw that listing that you guys have. That's a butt. You said 23 keys, is that right?

Hunter Johnson 4:56

Yeah, 23 keys. They've got two hot springs pools and a vapor cave, which one of two commercial vapor caves. You actually go in this old, it's a real cave, and you go in it, and you kind of there's a little pool in there, you soak, and the Native Americans kind of made this their stomping ground back in the day. It's a really cool, unique asset. But there's there's been a lot of interest. But pricing, we were hoping to get probably 10% more than we got out of it. So it's still a good showing, but a lot of interest, but still a lot of cautious money out there.

Michael Russell 5:27

Yeah. Well, I think that you're touching upon the fact that your real estate is a bit sticky, and obviously sellers move a lot slower than buyers. Buyers adapt quicker. And so right now, if the buyer target, buyers are looking for value. You touched upon different ways to value properties through the gross rent multipliers. I guess if someone is looking to approach a listing, in general, every property is a little bit different, but where in general are the transactions ultimately falling in terms of what the sale price is versus what the ultimate contract price is?

Hunter Johnson 5:59

It depends on the broker and and how they structure it. You know, some brokers will take a listing at any price and just hope the seller becomes realistic. I I think that's probably around it, probably 10, 10 or 15% less kind of what the initial offering is. We'll give guidance and expect that it's not gonna get to guidance probably, but try to create that benchmark and that starting place for for buyers. Is someone coming in and trying to find out there's a lot of different ways to skin the cat, and maybe maybe you can get to a little higher pricing with some seller financing. And you know, I'd really talk to the broker and find out what's really important to the seller is a timing. Do they really need all their money up front or could they do some seller financing and then you can bring less equity in? There's a lot of different ways to approach it. And I think you can glean a lot of information from the broker's good and and really has a good relationship with the seller. I think creating that relationship with the broker and and really trying to get in the mind of the seller to provide them a deal that that makes sense.

Michael Russell 7:03

Yeah. No, you talk about financing. I think this is a good transition because this is critical for getting deals done, is we got to understand not only where we are in the market cycle from a sales transaction perspective, but also where we are in terms of what's what's affecting financing. So I want to know what deals are getting funded and what's not. So what types of financing are actually getting done right now? Are we talking about SBA loans, bridge, local banks, or something else?

Hunter Johnson 7:31

It's really deal-by-deal specific. There's a lot of SBA, especially the last couple of years in the say around $5 million because of high interest rates, 70 is not as popular, but uh a lot of 504 and the interest rates were really making sense. It's brain damage to get those done, but it could make a lot of sense for getting the interest rate down. Obviously, with the shutdown and that sounds like getting a relief, but there's gonna be a backlog. Everybody who's been waiting and it's just been adding up. So I think those are gonna take extra loan to process right now. If you have in place cash flow and you can get your debt coverage ratio, then conventional debt is an option. I mean, banks ebb and flow, and they were banks are loosening up and they want more hospitality. I think they were so tight for a while. They have their boxes of industrial hospitality, all these things, and they don't want to fill up one bucket too much. The banks want to diversify. So they've been so tight for a while they haven't been doing originating any loans, but they've still been getting payoff. So now they're saying, hey, this bucket is is well below where our comfortable threshold is. We we need to do more. So now I'm getting calls from banks like, hey, we're we're trying to get it more in the hospitality space, like send us some deals where this is obviously music to my ears and a big departure from where things have been for the last couple of years. If you're in the kind of five to ten million dollar purchase price size and you have in-place cash flow, going and just to local bank eventual people who probably know the property, know the market, that's that's probably the best route. If you're not getting your debt coverage ratios today, but there's a great story to how to get there, just poor management, absentee owner, just needed a renovation. That's when you probably go SBA and sellers just got to understand it needs some time. When you get to a little larger $12, $15 million plus deals, I'd probably use a broker and have them do more of a shotgun approach to send out this deal to a bunch of different sources, trying to get a bunch of different lenders involved. And and that's how you kind of find the needle in the haystack, that that best deal, that kind of anomaly, and get really good terms.

Michael Russell 9:32

Let's talk about the terms real quick. What I'd like to know now is kind of what are the the in it from a general sense, what are the rates and terms that someone could expect when purchasing a hotel in let's say that that smaller threshold of the five to ten million dollar range.

Hunter Johnson 9:45

If we're talking conventional, I just got a quote from a bank at 30% down, so 70% LTV, excuse me, at prime, so 7% with a half percent origination fee. This day and age, 30% down is is pretty good. I mean, banks have been at 35, 40% down over the last couple of years. I got another bank who there's like, oh, we really want to get in hospitality, but they're at 35% down, but are finding kind of creative ways to to bridge the gap, and and their rate was six and a half percent. So I think that's that's kind of the range prime or just under and thirty to thirty-five percent down. And the the more the properties stay, the better the property stands are though merits today versus tomorrow, the better terms you're gonna get.

Michael Russell 10:42

So is that realistic? Do you think that there's there's validity in that advertisement?

Hunter Johnson 10:46

Yeah, I think so. I think you get close to six on the blended rate. You know, if you know at 504, you've got really two different loans. You've got the bank holding some paper and the 504, the the SBA, the government holding some paper. That's why it takes so long. But once you blend that rate, getting something around 6%, give or take, I think is is is absolutely possible. I mean, before the yeah, before this this kind of recent rate relief, we were seeing stuff in the in the mid-60s sometime. So I'm not surprised on that.

Michael Russell 11:15

Can we unpack that a little bit here for our listeners that maybe are not as familiar with the different SBA loan types? You mentioned that the SBA 7A can be a little cost prohibitive now in comparison to the 504. Could you just walk us through how that works?

Hunter Johnson 11:29

Yeah, so the SBA 7A is basically the government just putting a guarantee to the bank. And I believe it's 90%. So they're saying worse come to worse. If there's a default scenario and your property is only worth 85% of the price or whatever, we'll we'll bridge the gap and we'll pay you this additional 5%. They actually put a guarantee on it. So banks are a lot more open to lending when they have this additional guarantee from the government. But for that, they charge basically it's a floating rate. So, you know, guys were getting these great rates on 7A four or five years ago, whenever that was three, four years ago, and then all of a sudden their rates went way up and they were in big trouble. You want to do that in probably where you foresee a decreasing interest rate environment. But the problem is your your rate from day one is going to be higher. So that's I think typically prime plus one and a half, something like that. Um, so your your rate's probably more in the eights on a on a 7A. Now you could come with less cash down. I think the the minimum requirement, I believe, is 15% for these, for them to kind of have their guarantee. But usually banks have overlays and require more money down. That's kind of the 7A product. It's a little easier to get done because they just kind of looking at the paperwork and checking out there's kind of direct 7A lenders that can kind of do their own approval, and it's more of an efficient of a process. Or is simple, you can also have lower down payment requirements than you would on conventional. It could maybe get down 15 or 20%. They'll also look more on projections and could do more of a pro forma based loan. But it's really straight. So you have your money come in, your down payment, and then you have two different loans. You've got the bank, which is typically, I think, what, like 50%, 55%, and then you've got the SBA 504 who's holding their own note at like 30, 35% of the loan, and then you're you're bridging a gap with your equity. So they're literally fully underwriting it, their their percentage. It's like dealing with any bureaucracy, it just takes a ton of time, and you won't hear back from them for a week and a half, yeah, a month and a half, and then all of a sudden you do all this additional paperwork. You're like, I wish I'd known that a month and a half ago. But their rates are super attractive. And I'd have to look that up now, but typically the rates on that would be like a few points under prime. So you're looking in the 4% range, and then you take your bank loan in the sevens and you blend the rate to get like your blended rate, what your kind of actual rate is. And then then they figure on the it's not like you're making two payments, they figure it on the back and the bank will like disperse it. But it's a way to get more attractive rate. The other thing to know on 504 versus 7A is 7A will typically have like a three-year prepayment penalty and a requirement on that to do their funding. Also, the fees are high, like two, three percent on that. The 504 also has quite a bit of fees, and their prepayment penalty on their portion, so the the SBA debenture, the the 30, 35 percent. I I think a lot of times it'll be like start at 10% year one and year five, it's five percent, and then it goes down to zero after 10 years. I think sometimes you can negotiate down to like starting at 5%, but that's not for a five-year whole ARR. And if you're paying 5% on three million bucks, I mean that's that's something to to take into account. It's not the end of the world if you're making a killing and someone makes you an offer you can't refuse, but uh something to to take into account.

Michael Russell 15:07

In summary, I mean there's a lot to this. I might not be able to uh summarize all of it, but it seems like 7A is for the investor that wants to close more quickly. There's less bureaucracy, you can acquire a property with a 7A, but there's some limitations to it. One of the advantages beyond just uh speed is a potentially lower prepayment penalty. Uh the disadvantage is the 7A tends to be more expensive debt. If you go the 504 route, it is a pain in the ass. It takes forever. But the advantage is that you can have a lower interest rate. And for someone that is looking to finance for a longer term, they're not trying to, let's say, renovate the property and then refinance it into a longer position loan. Their goal is to just to hold it. The 504 is going to be less costly and it's going to be fixed. The 7A is going to float. And I always find this to be a little bit ironic because when people describe the 7A as being the advantage is that there's they're it could be positioned as less cumbersome, less risky. But the reality is because it's floating, it is more risky. And it's it's a little bit scary if you're a smaller outfit and you're subject to these rate fluctuations. If we all had if we all had a crystal ball and we could time it to where we do the 7A when interest rates are going down, then yeah, to our advantage. But to your point, a lot of people got caught off guard and they got pinched. They might have entered into a 7A a few years ago where they were paying five, six percent, let's say, and then all of a sudden that shot up to 10%. So you got to be aware of these things, just a couple of options. SBA is not the only way to finance a hotel, but it is common because unlike traditional real estate, a hotel investment is an investment in real estate and simultaneously an investment in a business, an operating business. And so that's why hotel owners tend to evaluate or at least explore the SBA route when purchasing hotels. You mentioned bank loans, conventional bank loans. I think you're right for the smaller deals, that makes a lot of sense. As you get up into the bigger investments, and there's a whole nother world you mentioned that brokers can play a role in placing larger debt. What I want to know is let's say a deal doesn't pencil for traditional debt, whether SBA or conventional, like through a bank loan, what creative structures or workarounds are you seeing borrowers borrowers use to make it viable?

Hunter Johnson 17:32

Well, I mean, look, seller financing first and foremost. I mean, it it depends. If the seller has a good chunkable size of debt on it, then then that's not gonna make any sense. But you know, a lot of these boutique properties that's been in the family a long time. That's the case with this property in URE that we're working on. So, you know, if you can convince someone to do seller financing, and maybe even it's a portion, maybe the bank's like, look, we'll we'll do it, but we're only gonna come 60%. And you only have 25% down. Bridge a gap with seller finance. It'll have to be in a second position, but you know, it it still can make the metrics work and allow them, like if it gets them their price and they're comfortable with you as an operator with a proven track record, you know, you've got a good business plan. Seller financing is the most efficient, easiest way to kind of bridge a gap in equity and get seller comfortable. If you can do all seller financing, that's fantastic. Not a lot of sellers want to do that, or they're gonna want probably 50% down. But yeah, we we dealt a lot with seller financing throughout the years. And some other deals we're working on, it doesn't happen as much on the smaller deals, but you know, some type of joint venture type of scenario where they're leaving in some equity in the deal and they're kind of realizing some of the upside they're gonna gain from from your operations, but they're also taking on some of that risk with you, which they are somewhat in the seller financing, but it's riskier in a in an equity position. So so those are some ways to get it done. Seller financing is always the first thing to kind of ask because that could be the difference between a deal getting done and not a lot of times.

Michael Russell 19:08

Yeah, that's really good. Yeah, we I just went through this in negotiating to um make a purchase here for a hotel that I'm entering into contract here shortly. We went through this positioning of the property involves renovating, making some improvements. So we're gonna have to invest a considerable amount into the CapEx, maybe a million, million and a half dollars. So it's not unbearable, but there's gonna be some improvements. And I tried to negotiate to either a have seller financing in the second position. He wasn't really comfortable doing that, didn't want seller financing in second position. So then I said, okay, well, can you do seller financing in first position? And he was a little uncomfortable with the risk of the renovations and all that. And so the compromise that we made was if seller financing is not gonna work, it doesn't fit his risk appetite, then what we agreed to was a longer escrow period. And I communicated that. Look, there is a pathway to be able for me to purchase this hotel and get financing for the improvements. But typically the pathways to the SBA, I'm going to ask that I need a little bit more time to feel comfortable. So we work out a longer escrow period. In fact, you gave me six months, which I thought was incredible because then I know, okay, I've got some breathing room. If we go the SBA 504 out, I don't exactly know how this is going to shake out because, like I said, this thing is going under contract, but I do want the peace of mind to know that if we go that SBA 504 out, that I've got a little extra runway. So that was just a creative solution. He felt comfortable. He gets all of his money through uh traditional not seller financing. So at sale, all this money will be delivered. And then it gives me some extra runway. So I think that thinking through some of this stuff, every deal is a little bit different, but there are some other ways to be able to make deals work that aren't just don't fit within the simple box. So think creatively through this.

Hunter Johnson 20:56

Yeah, I think that's that that's the difference between investors that that have more success is you can't take your first option at face value. You've got to, okay, well, how about this? How about this? And you really try to feel a lot of times sellers will let you know they're like, oh, well, this is my number one problem, and then you need to help me fix it. A lot of times they don't have an out. So you kind of got to dig in and try to try to create that relationship. A lot of times there's a broker involved, but there's still ways to kind of create a relationship and understand their needs and timing of Escore Sue is kind of going back to the SBA. If you're looking at 504, you want a long loan period and loan objection deadline, financing deadline. And I'd put in there an automatic 30-day extension if required by a lender and just have that be automatic. You don't need to go back and renegotiate, like protect yourself on the loan because these are things that are out of your control. And the again, if there's an SBA shutdown in the middle, you're like, you think you're to close next week and all of a sudden it's pushed back. You don't want to be left holding the bag. So you can have these things in a contract, and a good broker should be recommending these things to you.

Michael Russell 21:59

I love that. Yeah, no, that's great. Yeah, to your point, what we did is we agreed that it's a six-month escrow period with an additional 90 days option to extend contingent upon providing an extra $25,000 of earnest money. So a relatively nominal amount for that extra 90 days to me felt pretty great. So we're able to work that out. So we've I've got basically nine months to get this deal done, which I'm excited about. So yeah, I think that thinking through this and understanding and communicating, sometimes the sellers don't exactly know what's the most important to them. I want to talk a little bit about on the same subject of financing. I I think that it's great when you get up to these bigger deals and you've got like in your business. I mean, you guys, I think I read that you've done deals that are loan sizes that are north of $80 million, like big, huge hotels, huge deals. You've done this consistently. But for someone that is transitioning from traditional real estate into hotels, maybe they've got experience in real estate, but they're not a complete amateur, complete novice. They have experience, but they've never done a hotel deal before. How can someone who's never bought a hotel make lenders take them seriously?

Hunter Johnson 23:09

Yeah, I mean, the fact is it's extremely challenging to get debt. It's like, oh, I ran an Airbnb or something like that. And it's tough. It's like, well, how do you get in if you, you know, know it'll give you a chance? So a couple of different ways they go about it. One thing is you can hire a management company. It you need to have at least probably two million in gross revenue, room revenue to get management companies to take you seriously. But that's a way to kind of circumvent that. We just did a deal with a guy who was a tech guy and sold his company for a little bit of money and he wanted to get a hospitality and smart, but didn't have any background in hospitality. And you hire a management company that kind of solves that problem. And it's not like you need to keep them forever. And especially if it's a smaller one, you want to be with a management company that probably has somewhere between 10, 15 to 30 properties, any bigger than that, and you're not going to get the time of day. And you want someone that's really working for you. But that's a great way to get in. If it's kind of less than that, and you're really trying to get your first one and revenues are less than two million, or just a unique deal, and there's not good representation in that market from a management company, you you kind of need to find a partner that that has the expertise and find a friend, someone who's been in it, and you get in, you do the deal together, somebody with that track record who you can trust, who you can work with, and have really good operating agreements with with outs, always have everything in writing. It sounds stupid, of course. But I get calls every year, multiple, probably three to four, like, oh, it'd been some sour thing happened with a partner. So obviously you can't cover everything, but you know, you want you don't want to just get anybody you can in there. But that's kind of how you do it is they're gonna they're gonna give to someone, someone signing, someone being a guarantor, sign on the deal who has hospitality experience, preferably ownership. But you know, even if someone was a general manager, I think you could probably because if it's so strong deal, you could get by with that. But those are kind of the routes. Other than that, those two options, if you have no experience, it's gonna be extremely challenging. Maybe it's maybe you offer to say, hey, we're gonna keep if it's a small bank and you got a good relationship with them. Maybe you offer, you know, maybe the ownership stays around for a year or something, leave them a little, at least keep it a little equity, but they're there as like a consultant or some way. Talk to your lender and see what they'll need.

Michael Russell 25:37

Oh man, that is so good. I and that's refreshing to hear. That's how I feel. I do come across a lot of deals, and you know, a lot of them, let's face it, a lot of them are smaller deals, and it's it's so true that if you don't have the experience yourself, then look for a partner in what you just described with partnered property manager, property with someone that can co-sign the note. But the other thing I'm curious about though is in your experience, do you feel that is imperative or you will be at a significant advantage in the eyes of a lender if you run a hotel as branded versus going the boutique or independent route?

Hunter Johnson 26:11

It's still a market work specific, but uh in the lender's eyes, they want there is risk adverse. You know, if you're a banker, you ain't risk, and it's just funny the personalities that it attracts. That's why I had to get out of there. Used to work at a regional bank. But yeah, they want proven commodities. And even if it's choice or windem or investors more like Marion Hill, but from the bank's perspective, they just want something that they know the kind of systems are in place. So unbranded is going to be a lot more challenging from new acquisition to ground up development. Again, it depends on the market you're in. If you're off of a freeway or something and you're just getting the drive-by traffic, you're not gonna get a loan without a brand. Um but if you're in if you're in, you know, downtown Maui, is that a thing? If you're in Maui or Aspen or whoever, then you know, I think those they'll there'll be some more understanding there. It really depends on what the market does. But it's gonna be a lot more challenging as a boutique independent. And if you are, then again, the best route to go is the local bank, someone who already knows, like, oh, I know that property, and with that familiarity, maybe you can get it done. But you know, they're all looking at different risk factors. So if you're it's your first time in a hospitality, like at my bottom dollar, you're gonna need a brand. And if you've been doing it a while to have a proven track record, and you're like, hey, I ran an independent boutique property or this market's so hot, you know, we don't need it, then it's less of a concern. But we get back a lot. Lenders want lenders want those lower the risk profile profile as much as possible, and they feel that is the case with those with those brands. And and and a lot of times that is the case.

Michael Russell 27:56

Yeah, I mean, it's really sound advice. And you know, I'm sure a lot of our listeners who have aspirations to run their own independent hotel, that might be a little bit discouraging because if they don't have the experience, they think, oh wow, like maybe we're crushing dreams here. But I think it's important to know this ahead of time so you can plan, right? You can come up with a contingency plan. If you don't have the experience and you don't have the recognition and financing is going to be challenging, start to plan for it ahead of time. We already talked about the the various ways in which you can partner, but it's just an important note.

Hunter Johnson 28:24

You know, I listened to your podcast from a week or two ago about syndication. I mean, that's how a lot of deals get done. People raise money. But for a broker to take you seriously, because there's a lot of people just calling, trying to get just crazy wild deals that don't make any l sense. And as a broker, I've always got my guard up. And I'm like, okay, what's what's going on here? What's the real story? Because we only have so much time of the day. So if you can do that homework ahead of time and already have somebody who has that trek record, you know, that as opposed to looking, I obviously it's easier to do if you have some slam dunk deal, but but to get in there and be able to move quick and make an offer and get accepted, you want already to have that relationship with somebody. So if you can, I develop that ahead of time because it's gonna make the process, you're gonna win more deals, you're gonna get more credibility on financing, and you you want to do that in the beginning. And a lot of time that that could be the hardest part. So I I'd focus on that and get somebody like-minded and create that relationship as soon as possible and still look for deals, but create those relationships ahead of time and be ready. Because a lot of times, so for subsellers, the quick best thing is like who can move the fastest, and especially if all things are equal, like who can who can get the deal done? What's my surety of closing? And if you can say, I'm working with this guy who's already done excellent deals and whatever, and you're gonna have a big Lego.

Michael Russell 29:48

Yeah, yeah. Well, speaking of deal flow, everyone says that the best hotel deals never hit the market. From your experience, how true is that?

Hunter Johnson 29:59

There is truth to that. I think, yeah, there's a lot of off-market deals that have viability and aren't going to market for whatever reason. If I'm going to sell a property, I'm going to market 100% and I'm going to create the biggest market I can. So my pitch always is like you don't go to an auction and have one buyer, and you know, one person bidding. You want as many bidders as possible to bid up the price. But there's people who they don't want their family to know that they're selling, family or friends, or all sorts of different reasons. They had bad experiences with a broker before. They're trying to sell it themselves and save that fee. But you can definitely find opportunity. So talking to brokers, having those relationships so that they're bringing you deals. For me as a hotel broker, again, it's different than a residential world where there's pretty much in residential, there's always a buyer's agent, the seller's agent nine times out of 10. And in my world, there's few and far between. Selling probably 50 hotel deals. I've worked with a buyer's agent like two or three times. And one time it helped, and the other couple times, it just created a lot of extra homework. So, with that being said, these brokers are looking to bring deals to people that they think can execute, do what they say they could do, that they feel like they have a relationship back with them, are going to go around them. I'm going to bring a guy this deal, a guy or gal, because I think they can perform and I like them. There's most people can perform, but it everything's relationship. So forming those relationships, I think are pivotal. Having your ducks in a row ahead of time so that the broker takes you seriously. And then I don't know. I'm just trying to think like I don't like working on the buyer side as much because you can do a lot of work and end up with nothing. But if it were me, I'd talk to brokers and like, hey, if you can find me some deals, I'll either pay you a little bit from my side or maybe I'll give you a little bit of equity in the deal. And if someone came and told that to me, even if it's a sliver, I'm going to focus on that person. And if you're getting a way better deal because it's off market, who cares giving up a little? You're giving a little to get a lot. So how can you be creative to create those relationships with brokers? You can call around and call properties and people get stuff done that way. But you're if you have good relationships with brokers, you're spreading out your tentacles, you're creating a much wider net. And if you can get incentivized them to for you to be their first call, you know, how can you do that? And those are just some ways to be get deals done and be first aligned.

Michael Russell 32:28

So yeah, so you know, if you give a broker an incentive and you can give them some equity, why not? And does is that a conflict of interest though? Like if you're a listing broker and you are calling upon a property, can you give the listing broker a slice of equity or is that not allowed?

Hunter Johnson 32:46

Absolutely. Absolutely. I disclose it to the seller. I mean, it's like anything. You get you know referral fees from lenders. I'm all about just being as transparent as possible. At the end of the day, if everybody's winning and the seller's getting their price and the buyers getting their price, it's all good. And a lot of times on these off-market deals, it's probably not an official listing. Maybe I've got a non-circumvent or something so I could go talk to a few parties or something like that. Not that it really changes the rules, but you know, if I have a full-blown listing, we're going to market. I don't know why we wouldn't be. And, you know, off-market is kind of, I've got some listings where they're like, oh, well, we don't want it on loop net or Cruxy, the third-party marketplaces. But, you know, we just want you to send direct emails. Consider that kind of a listed deal, not really off-market because we we're creating a market. Whereas off market, someone's like, Yeah, you know, so if you got me the right price or we're we're interested in selling, but you know, not right now, and we won't sign anything. That's where kind of those opportunities come in. And there's a lot of new ways to structure to deal with that.

Michael Russell 33:45

Yeah. From a buyer's perspective, you touched upon something that kind of struck a chord as a broker. Working with buyers can sometimes you go through this process and nothing can nothing comes from it. So you want to have the the listing, you want to be a seller's broker. From a buyer's perspective, some of these off-market deals, like you just described, it's like, how serious is the seller? I've had situations where, yeah, the property is off-market and we kind of go through it, but the seller is not really that motivated. Now, this doesn't apply all the time. This is not universal. This is just something to keep in the back of your mind that sometimes, you know, they're just testing the waters, they're not really that serious. And it's ended up costing us a lot of time and frustration because like we just couldn't really come to real terms. Like we provided what they wanted, we made a legitimate offer, and we just kind of spun our wheels because at the end of the day, they backed off. Oh, I got to talk with other parties. And then ultimately they weren't real. So sometimes off-market deals from a buyer's perspective, not always, disclaimer, not always, but sometimes it can be a real pain in the ass.

Hunter Johnson 34:45

Not a lot. I agree. And for me, in my perspective as a broker or an investor, I mean, that's just kind of the cost of doing business is that time. You know, you're never going to be certain. But you know, even if something's listed, you could come in with what you think is a great offer and someone could beat you out by 50 grand, and you know, you spend all this time underwriting it and you get squeaked out. So it's like the same thing could happen with a solicitor unlisted. One assumes if something's listed and being marketed that these these guys are looking to sell. But you know, you can be with a similar scenario. But you know, for me, my mindset is I want to turn over as many rocks as possible. Just keep turning over rocks. And sometimes it's brain damage. Sometimes I could turn over a hundred rocks and there's nothing under them. But when you turn over one rock, you find a hundred bucks. For me, it's all worthwhile. So that you you got to gauge the situation, really get with the broker and and try to understand that history. Because yeah, sometimes it might not be worth spinning your wheels, but that's gonna happen. You're gonna work on deals and the the seller's just gonna change their mind. But if you don't you don't buy a ticket, you're not gonna win the lotup. So you got to just keep buying tickets.

Michael Russell 35:53

Can we expand, though, on the deal flow here? Because um, you know, you talked about building relationships. That's awesome. I agree. Yeah, you got to figure out ways to build relationships with brokers. But what other advice would you have for investors that are trying to, let's say, 10x their deal flow this year?

Hunter Johnson 36:07

One thing is to find, you know, who you are and what differentiates you as an investor. Again, every investor wants the same thing. I want in-place cash flow and upside. And that's not always going to be the case. So find your kind of sweet spot, be willing to be flexible. But like I want properties in in certain markets of such and such time. I want to be tourists, destination markets, I want them such and such size, and how on the payment, find the brokers in those areas, make the calls, and try to have it a good enough size bucket. If you're too narrow, nothing's gonna find, nothing's gonna you come to fruition. And what is your risk profile? If you want a 10x, your your your your property's coming in, you're gonna have to take on some more risk. But I think a lot of folks are so risk adverse right now that in my mind, that's gonna create opportunity. And I would say, like, if everybody's zigging, I want to zag. And no, I don't want to be to a detriment, I don't want to be foolish or foolhardy, but you know, if if everybody's waiting, you don't want to be the last person to to the party, and there's no punch left. So you got to kind of time it right. And I would say find that metric like, okay, we can find these underperforming assets. I've got a contractor buddy, we've got a construction team in place. I know that I can redevelop this, I can renovate it for less of my competitors. So I'm gonna find these properties that need these renovations. They're in good markets, but they're not performing because of this, and I'm willing to take that risk because I think I can get to to what that comp set is doing, what my market is doing or better by doing this renovation, and I'll be below the basis. Now, there's risks there. It's harder to get debt sometimes, but if you're strategic and have a good plan in place, I think you you can get debt. And you just have to find basically what you and your partners where the most value you can provide, what differentiates you from other investors, and then go go full-fledged in that direction. At the end of the day, you you you got to take some risk and and you're probably gonna have some losers. But if you buy 10 properties and two are losers but eight are winners, you probably may not okay.

Michael Russell 38:18

Yeah.

unknown 38:19

Yeah.

Michael Russell 38:20

So listen, you've got a background in insurance, and most operators underestimate how exposed they are or how they actually are until something goes wrong. So when underwriting or taking over a hotel, what are the what are the critical things every owner or operator should make sure are included or excluded in their insurance policy?

Hunter Johnson 38:42

So that's a great question. It's been a while since I've been insurance, but you know, there's a few things, you know, I insurers are always figuring out ways not to pay. And yeah, they're you're gonna get if you get the cheapest policy, there's probably a reason why you want to cover cyber and and all those risks that can come with all the new advances in IT and new ways people are figuring out to get a property. So, you know, I'd cover for that. A lot of times, like water overflow and like water issues are sometimes not covered, which you think would be like inherent and obvious. I'd make sure that you have additional water coverages, employee employment practices, liability, and that type of stuff. A lot of times depends where you are. If you're up kind of in a more place that's more in the mountains or something like that, like do you want to have like mudslide coverage or or something like that? Because that's definitely not gonna be covered. And if somebody, you know, if like a rock comes in your building, they'll be like, oh, well, that was due to kind of mudslide, and people are covered. You know, a lot of these tourist destinations are more mountainous. So you got to know your topography, your geographic region, and understand what the risks are. So those are things that I'd really focus on. I'd have a good broker that that you like. One thing that people don't understand when they're getting brokers is. They all pretty much, if they're a pretty well established insurance company, they all have the same markets. It's all the same market. So if you hire two or three insurance agents and you're like, hey, go get me insurance policies, first of all, once they go to Liberty Mutual, whatever, it blocks it out. So the other guy can't do it. So if someone comes in and they see all these block markets, they're not going to spend the time on it anyways. And then if the person you're working on knows it, you have other insurance brokers working on it, they might not be as aggressive. So I'd find one guy you really like, guy or gal, and have them do your insurance policies. But with that being said, these folks rest on their laurels a lot of time. So with these, with the when you do have your renewals every year, they're just kind of crossing it off. They're not really looking to move more markets. So I'd have that conversation with them. Like, hey, I want you to go price this out to a couple markets. Maybe not every year, but every couple years. And a lot of times, like, I mean, we had a property we're paying uh what one broker this guy used forever. It was like $85,000 in insurance. And we got it down to $50,000. I mean at $35,000. I mean, that's $350,000, $400,000 in value to my my net income to my um right there. So always have them make sure that they're working for you and going to be aggressive on those renewals. And you know, it's it's brain damage for these insurance guys, but you know, they got to do it because it could be meaningful dollars.

Michael Russell 41:23

Yeah, I mean, that's a significant point there. The the dollar savings affects your your bottom line, your NOI. And your NOI is how you derive value. And so if you can go and save 30% on just insurance costs, I mean, that could have a huge impact on the valuation of your property. And this isn't a topic that a lot of people enjoy talking about because let's face it, the the idea of running a hotel is about more of the glamour of providing a great hospitality experience. It's not about the people don't get excited about reading through their insurance policy and making sure that they're covered for these liabilities and risks, or making sure that they're not overpaying on their annual premium, but it is so critical. And I will say this. So we just recorded an episode on using AI within real estate. And I get my insurance policies every year and they come in digital format. And so, look, guilty as charged. I'll be honest, I haven't really been reading them. I mean, they're so big, but we recently changed insurance providers, and then this last policy came in the mail. And holy heck, it was the like the policy was about as thick as a phone book. I mean, it was so freaking big. And I'm like, I'm not gonna read this. Who's gonna read this? This is crazy. I can't even interpret this. But back to the AI piece, there's no excuse these days. Take an LLM, doesn't matter, pick your favorite, Claude, Chat GPT, whichever notebook LM, pick one and put your policy in there and start interacting with it and and really find out what you're covered for and where you're exposed from a liability perspective. Because, you know, if you don't account for this, you can get caught with your pants down. And so I just I say that. I fortunately we haven't had a situation where we've had to really use our insurance policy, but I know that they're not, they don't have our best interest at heart. I mean, the insurance companies are gonna do what they can to not pay and still work within the confines of the policy. So it's just something to have top of mind and to incorporate into your analysis.

Hunter Johnson 43:22

Yeah, 100%. It's it's a big deal. It's something people don't want to pay attention to, but you almost want an aggressive insurance agent or personable one. I didn't realize how much their relationships with the underwriters, not everything is so set in stone. And if your broker has a really good relationship with the underwriters, you know, you sometimes can get a little more flexibility or they're willing to do something that they they might not, or you get feedback faster. So a good insurance broker can make a big difference in a lot of ways.

Michael Russell 43:54

Yeah, absolutely. So, Hunter, as we wrap this up here, you've touched upon so many different pieces of this puzzle, but if you were to give one piece of advice to someone who's trying to close their first hotel deal, what would it be?

Hunter Johnson 44:07

Man, I didn't get my cheat sheet ahead of time. My my most important piece of advice, I'll pull back in a personal experience. Invest in markets that you know and understand, especially when you're getting started. There could be blips that if it's oil and gas or whatever. I got my ass handed to me on this deal, and I had a you know, a hundred grand I put it in. I had over a hundred and twenty grand of capital calls after that that I was not counted on. And I had a slower year from the Procred. So it was you didn't ever want to have that much money that you weren't counting on. It was a market that I didn't understand. It just seemed like a really low basis. When I brought on these investors, these guys who had been in the industry forever, but you know, they were already kind of for the outside looking in, had everybody doing stuff for them. So nobody was really the expert at that point on uh hands-on operations. So the two most important things understand your market and spread it out on where you guys are rounding out the deal. Everybody has expertise in a different field. You know, I got somebody who, you know, one of my investors, he's a contractor, and the other one maybe he's been in insurance forever and understands what to look for there, those pitfalls. As much as you cannot recreate the wheel and kind of go on the history of people who've done it before and already made those mistakes, because you're gonna make mistakes, and how can you make them as painless as possible? So those do the two things understand your market and then really have an investment group and folks who round you out and provide value where maybe you have a weakness.

Michael Russell 45:37

Yeah, I love that. Honest, raw, I mean, helpful. So, Hunter, this has been awesome. I really appreciate you giving us a peek behind the curtain on how all this stuff actually works. So if our listeners want to learn more about you, your brokerage services, where can they stay in touch with you?

Hunter Johnson 45:55

Yeah, I love to throw us a U.S. hotel advisors, a U.S. like United States hotel advisors. We work coast to coast. We do a lot of stuff in the mountain west. But, you know, again, the last deal we finance was in Myrtle Beach. And, you know, we just really want to be that advisor and create create long-term relationships. And maybe we don't provide value for today. We're hoping for tomorrow. I mean, I'm gonna be in this next 20, 30, maybe 40 years. I don't know, till I'm 80. But we're all about the long-term goal and providing value. So yeah, US Hotel Advisors, look up our website. You can see the deals we've worked on and reach out anytime.

Michael Russell 46:32

Awesome. Yeah, clearly you have the experience, you know what you're doing. So definitely check out Hunter Johnson. I'm Michael Russell, signing off from another episode of the Hotel Investor Playbook. For everyone listening, make sure to follow or subscribe and share this episode with someone who could benefit from it. We'll catch you again next week. Uhloha.