What No One Tells You About Running a Boutique Hotel (Six Months In)

In Episode 9 of Finding Brotherly Love, Mike and Brian celebrate a major milestone: their nomination for the Philadelphia Business Journal's Best Real Estate Deals and Dealmakers in the hospitality category. But the excitement doesn’t stop there. They pull back the curtain on what’s working—and what isn’t—six months after opening Society Hill Hotel. From heated bathroom floors and high-tech bidet toilets to the very real struggles of storage, hot water issues, and the absence of an elevator, they discuss the wins and lessons learned in hotel ownership.

The duo also debates the “magic number” of hotel rooms needed to create a sustainable business model. Is 25 rooms enough, or is 35 the sweet spot? They dive into staffing challenges, the hidden costs of small hotels, and how scaling Society Hill Hotel might just be their next big move.

What You’ll Learn in This Episode:

• Why small luxuries like heated floors matter more than you’d think
• The unglamorous reality of hot water system failures
• The economics of adding an elevator in a historic building
• The ideal room count for profitability in boutique hotels
• How growth isn’t always about new projects—it’s about doing more with what you’ve built

Tune in every Tuesday for new episodes!

Transcript

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(Transcribed by TurboScribe.ai. Go Unlimited to remove this message.) All right, so check this out. We just got nominated for Philadelphia Business Journal's Best Real Estate Deals and Dealmakers. I'm pretty stoked. There's nine. What are they thinking? There's nine different categories. And we're nominated for the hospitality category, which is pretty sweet. It looks like there's three per category that are honorees. We don't know. All right. I'm just going to ask that. How many do we have to beat? We don't know if we won or not, but we're nominated, which is, that feels like a little micro win to celebrate. Well, I feel like if we were nominated for dealmaking, we got to make some deals to win this thing now. So this is the time. But I think that is pretty cool. I mean, it was a crazy deal, as we talked about in the very first podcast episode, talked about how we put it together, how we found the place, put it together. If you haven't listened to that one yet, go back to the very first podcast episode. We go over the entire deal, but it is pretty cool to see some of these mentions coming out. I don't know if you saw this one too, but a little bit back, I don't know if we actually jumped on it. We were also asked if we wanted to be considered for the best historical renovation. You remember that one? A lot of renovations of historical buildings happen in Philadelphia every year. And we were reached out to try to be considered for that one as well. So I don't know what the status of that is, but either way, it's cool to get recognized. And I think that there's a lot of things we did right. But I think six months in from opening, I think there's also a lot of lessons about what we would have done better. And it'd be great to pick each other's brain now and understand a little bit more what we each think about what we could have done better, because this is sort of the window. I always look at hindsighting, not too close to when things happen. If you hindsight, it depends on the project, but a bigger project, you really don't know what's good or bad until six months later, at least. And now that we're at that juncture, I've been reflecting on it on my end a little bit. And I know we've come together about sort of the things that we would have liked to do better, like the storage situation is horrible. We have no place to put anything in the hotel amongst a lot of other things. Yeah. I feel like from a a win perspective to start out, and I feel like it's sometimes even harder to look at what you've done right. And easier to see all the flaws. Good point. So I'm trying to reframe and think about the things that are working with the host with you're trying to make it positive. I was going negative and you got to bring the positive. So because the negative side will be easy. The positives though, some of the things that I feel like that we invested in, in the hotel that I'm glad we made the investment in are some of the more like quote unquote luxury amenities and investments that we put into the specific room. So I love the fact that we added the heated floors. That was something that we got a lot of pushback from our GC on. It was something that was a little bit outside the scope of the original budget for the rooms. But at the end of the day, when you're in a hotel room, especially in a city like Philly, I mean, we're right in the heart of everything. Most people are not coming to Society Hill to stay in the room the entire time. The whole point of staying in the middle of the most historic square mile. You have to go explore the city, go see all the sites. I mean, we have one of the best, actually the Museum of the American Revolution that's right across the street from us. They just got nominated as one of the top 10 museums in the country, which is pretty incredible. And so people are coming to see. It is stunning. It's also your second house. I love it over there. And me and George Washington's tent. If you can't find me in my home office, I'm over there. But that museum is right around the corner. We have the Liberty Bell. We have Carpenter's Hall. There's Independence Hall. There's so many incredible sites that you're really not spending a ton of time in the room. But when you are in the room, what matters? And the bathroom is one of the areas that we invested and probably went over budget on. But I think it was a worthy investment. That's to say the least. Yeah. But I think it was worth it. I mean, we have those marble tile floors in the bathrooms, but then we heated all of the floors in all of the bathrooms, which sounds like something little, but it comes up time after time in reviews of something that is unexpected and a nice luxury amenity. I mean, I'm not the most traveled, but in the nicer hotels that I've stayed in, there's a ton of them that have never had heated floors. And until you've stepped your feet on a heated bathroom floor, you don't really appreciate how nice of a luxury that is when you get out of the shower and you have the floors 90 degrees under your feet. It's huge. So I think that's one small win. That experience is one of those small touch points. Yeah. And then the same thing goes with those toilets. I was skeptical on investing in toilets because, again, I think it's something that gets glossed over in most renovations. I mean, I've done so many renovations that you're just looking for a standard comfort height toilet, and you're getting a toilet for, I don't know, maybe 200 bucks and putting that in there and you're never thinking about the toilet again. Whereas we put a lot of thought and had probably way too many conversations on what kind of toilet we want to have in the Society Hill Hotel. And we ended up on these heated seat bidet toilets that have air dryers in them. They're crazy. They have the remote control to control everything. Again, I didn't know if it was going to be just a novelty and kitschy and whether or not people would use them. But once again, it shows up in reviews. People love it. A worthwhile investment. I would do both those toilets and heated floors in all future hotel projects is how I feel. And I love the heated floor so much that when I just recently renovated my house, I put heated floors in both of the bathrooms because it's the best thing in the world. Yeah. I did it at the Rex three, four years ago when we renovated that first project. And it was exactly that. It was the most talked about thing in the reviews. If one was not working or people weren't able to get it on, it became also the most talked about thing. Hey, how do I get my floor heat on? People love that floor heat. And yes, I've never done the heated toilets and I don't have one of those, but it is crazy how much people like them or even if they don't like them, it becomes a talking point. And hospitality is all about creating those unique touch points and giving people something that is either super luxurious or something that they don't normally get out of their day-to-day experience, right? Yes, it's transporting them to something else. And that's exactly what Society Hill Hotel has done both in terms of location and also those smaller touch points, the restaurant downstairs, the pizza oven, all of those things have really made an experience. And some of those things that may not be as positive, like the walk-up staircase that we have, we can also spin it into sort of the historical nature of the building and things like that. But it's definitely like the build and everything about it, I think was exceptional in terms of like those small details, like the wallpaper on the ceiling for anybody that followed us on Instagram and saw us go through that process of finding the wallpaper in the basement, buried behind layers and layers of wall, probably hundreds of years old and finding a scrap of wallpaper and then recreating it into a wallpaper that we could get printed and actually use as our signature look throughout the building. Those are the things that really matter. And I think those are also the things that we probably now, six months in, need to do a better job at telling people about because yes, some people can experience it, they can see the wallpaper like, hey, that's cool. But at the end of the day, like what really popped it off on Instagram in the renovation process was the stories behind these things. And I think not trying to transition into the negative quite yet, but I think that's where the disconnect between all of this work and all of what's happened. Now it's like, how do we make sure that we're bringing people back to these messages and like talking about the things that actually matter? Because there is downsides too about the build, such as, like I said earlier, the storage, but then also the size of the rooms. They're not big, right? But I think, like you said, people are not there for the room. Well, I take that back. People are there for a lot of reasons, but the room may not be the primary reason, right? If you're going to old city Philadelphia, you're probably going out to the museums, you're walking around, you're hanging out at the cafes, the restaurants, the bars. I hope you're not just sitting in the room because that's not the purpose of being there. But I mean, I don't know, what are your two things that you think, do you agree with the storage and the room size being the two most challenging points of this build? So I think the room size is small, but I don't think it is, to me, I don't know if it's top two. The one that to me is number one is one that we consciously made a decision from a budget perspective and from a layout perspective that we would not address, and that's the elevator or the lack thereof an elevator in a walk-up building like this. And there was a million reasons why we chose not to do it. I mean, one was the cost. It was going to be, it was a six-figure line item at a minimum in order to get an elevator in this building. Built in 1832, there's no existing elevator shaft. We only had one primary staircase. There was a lot of challenges from an egress perspective to trying to add an elevator. If we did add an elevator shaft, we would have ended up with even smaller rooms and a different room layout. So there was a lot of reasons why an elevator didn't make sense in the build, but it's the one area that I think is holding us back right now that I wish we would have, and I don't know what the answer would have been, but I think that that is one area that even for the future of this property, I would love to find a way to get an elevator in eventually because it's a hike to get up to the fourth floor. And yes, there's charm to it. And yes, that's how the hotel was originally built. And it's been in operation like that for almost 200 years, but that is not... Yeah, when it was a flop house, the sailors didn't complain. Exactly. Exactly. So I think that to me, and again, I don't even know if there is a solution to it or if there was a solution, but that's the one thing that if we were to do a multi-story build again for a hotel, I think that more than one set of stairs is off the table for me. We'd have to a provision for an elevator. And I think maybe there's an opportunity in the future for us to add one in. It would be a more extensive development project, but there is opportunity for us to go up on the existing Society Hill Hotel and build another story or two. And if we did that, we would definitely need a hotel. And then maybe we could justify an elevator shaft and what that might mean for the room styles. But I think that there... Yeah. I think the only way to do that is to expand the hotel. There's no way to add the economics of adding an elevator without expanding the hotel either up or to the side if we can acquire a next door neighbor. That's the ticket because then it becomes a nominal line item in a bigger renovation project. Whereas right now for the 12 rooms that we have, the cost that it would add per room probably wouldn't be worth it. I agree. But yeah, I think that those are the areas that I feel like are lacking, sitting back and looking at this six months in. And then also, I feel like going back to a couple of things that we did well with the renovation that I'm happy with and some of the things that I feel like are challenged. We did a good job from an infrastructure perspective. We replaced absolutely every piece of wiring, every piece of plumbing, brand new sprinkler system. I mean, it was a complete and total renovation from that standpoint. But some of the decisions that we made on those mechanicals, I think I would have done differently now too. We used some big instant hot water heaters for all of the water in the building. Once again, we did it for a couple of reasons. One was space saving because huge hot water tanks would have taken up more of our restaurant space in the basement for our prep kitchen. So we moved away from that. And we also liked the idea of never running out of hot water, which is the theory behind an instant hot water heater. And we have multiple... Turns out that theory is not true. Because when your hot water heater goes down, your hot water heater goes down, whether it's instant or if it's a hot tank. And we recently had an issue with a six-month-old hot water heater that it broke and we didn't have enough hot water to support all the rooms. We were fully... We just got the quote today. I mean, it's like $3,000. It's going to be a huge issue. Exactly. And we had a full house of guests that is a bad time for a hot water heater to go out randomly on you. So I think that that's one of the lessons too, that making sure that the mechanical systems that you put in place can withstand the level of use that we're planning because we want this place to be booked constantly. But that means that all the mechanicals need to be able to support that. So I would probably rethink some of the infrastructure pieces that we invested in. But overall... Go ahead. I was just going to say, I think the biggest challenge with this project related to infrastructure and related to elevator storage, mechanicals is the size of it relation to the investment and also the desired outcome. And what I mean by that is this wasn't a big, big budget project. I mean, it was certainly a couple million dollars of a renovation project, but it wasn't the scope of, say, a bigger hospitality project. And when it comes down to the size of the actual square footage of the building, what is the square footage of the building again? Yeah, we're about 4,500, 5,000 square feet. Right. So slightly bigger than a big suburban house. And we have a full restaurant, bar, 12 hotel rooms, staircase. I mean, it feels actually a lot bigger and it looks a lot bigger when you're standing outside of it, but the square footage is not that much. And therefore, that constrained the rooms because if we went down more from 12, we would have had really no economics to make the hotel portion work. We already have challenges with staffing enough on the hotel side specifically to support the hotel, even at the 12 units, because you can't have a full-time person there all the time to manage a small hotel like that. It's very similar to all the challenges that we've had in our career and that I still have in my business and I'm trying to shake free from on the Linton Outdoor Hospitality side of things, which is it's nice to be small because it's very attainable. And I think that the fallacy of pushing United by Blue for growth was maybe that business was never meant to be as big as what we aspired it to be. And we were pushing for it to be bigger, but it was still constrained by some of the basic limitations. And when we were opening things like a store, we didn't have the budget to go out and do, other than our flagship store in Second Race Street in Philadelphia, when we opened stores in New York City or Chicago or other places, they had to be naturally smaller because our product line and just the nature of our investment into that space wasn't significant enough to make it like a big Patagonia store or an REI. But in doing so, we had significant limitations with the management of that and the ability for us to get the desired output. So I remember our New York City store for United by Blue, it was a two-person, three-person max team. And so when you have that number of people and you're only able to have one person at any given time, that person goes to the bathroom, that person is out sick, that person doesn't feel like selling. There's just so much riding on individual smaller either people or systems and appliances, the redundancies that a bigger hotel can have, you can't build into this building. And so that's the problem with the hot water heater right now, even that we're dealing with that we were texting about earlier, which is like, A, how does this happen six months in? And B, we don't have space to put in another hot water heater so that we could have even a backup. For instance, when we had to do that at one point months ago for a different reason, it took up the entire manager's office, an extra hot water heater. So both in terms of size of the building, but also in terms of size of the business, those limitations make, in my opinion, going back to what we talked about with United by Blue all those years ago, small is very nice when it comes to having a lower risk, but in many ways, that lower risk might actually lead to higher risk because of the lack of investment and the lack of, again, people, systems, processes, and everything that you can put into a bigger business, it's harder to do it in a smaller business. Without a doubt. And I think that's what we're experiencing right now. I agree. I mean, what do you think, knowing what we know now and from your other projects, because I mean, the Rex is similar. How many rooms do you have at the Rex Hotel? That's only 10 units. It's bigger in terms of rooms because it actually probably sleeps more people. It sleeps about 28 to 30 people total on a full night. So it's small. 10 keys. So knowing that what you do from the Rex and what we now know from Society Hill Hotel, what is the magic number to break into that next level of hospitality where the business can be large enough to support some more of those kind of key systems, management things, those elements, even like from a maintenance perspective. I mean, there's always something that needs to be done at the hotel. You have the same issues, I'm sure, at the Rex and at Ferncrest. There's always something that's breaking, whether it's a door lock or if it is a light bulb or a faucet. I mean, that's something that is a standard. That's what's so different, I think, from residential versus hospitality in this way too, is that the use of these items is sometimes more frequent and sometimes a little bit more extreme than the wear and tear that you get with somebody in a long-term rental. And there's a level of urgency that comes with hospitality and a short-term rental compared to a long-term rental as well. Somebody has a leaking faucet at their long-term rental. Yeah. Residential, I don't get back to them for like 24 hours. Exactly. It's not the end of the world if the repair guy comes out the next day. But if you're staying in a hotel for one night and there's an issue, the issue needs to be fixed immediately. It's minutes, not hours. Yeah. It's minutes, not hours. Yeah. And I think that the chat- Or you lose that entire revenue of that stay. Or you're coming up with new solutions where it's like, okay, well, we're going to move you to this other room. So then that's an inconvenience to the guest. It's also now- But a small hotel, you don't always have those options. Exactly. Yep. Right? The smaller the hotel, how many times are you full on the weekend, both at SHH and then also at the Rex, it's the same thing. If you have 10 rooms or 12 rooms, your occupancy is usually 100% on the weekends if you're doing a good job. Whereas even some of the better hotels might have, if you have dozens of rooms, you might have one room here or there, somebody didn't show up, things like that, where you can move people around. But you asked the number of units. I don't think it's as big as what I would think other people might say. And I think it's probably come down from maybe a higher number because of technology and because of the way that hospitality has evolved. I like to think it's between 20 and 30. I think 25 gets to a point where that's not big by any means. And I don't think you're going to get, you're not going to build a huge team out of that. But at 25, you can have a general manager for a property that is making $70,000 plus a bonus. And it's probably still less than 10% of revenue for a general manager who would then have maybe a cleaner, one or two cleaners. And then maybe that's about it, actually. If you had a general manager with a couple of cleaners and maybe a part-time person that comes in and helps them out with other managerial duties and helps them be on site. And this is not the model where even you would have a front desk yet, but at least you have on-site personnel that is like higher level than say the cleaning staff. And I think you can do that at 25 because I do think you're at 20, north of 20, you start to be a seven-figure revenue hotel operation. If you have a decent ADR and even an okay occupancy, you're over a million dollars. You could probably get to a million dollars for less, but I'd say 20 is where you should be a seven-figure business at that point. Over 30, then I feel like you start to have to build out more of a team around even maybe having a front desk, concierge, all of those types of expected services. But that's why I think 25 should be the target for future projects. Yeah, I agree. And 25 is even on the threshold though of too low to have an on-staff maintenance person. I mean, I know you have a guy or some guys that work in your businesses. Yeah, but we have down the road, we do have Ferncrest, which is currently 21, actually going to 25 in a couple months. And so obviously I'm a little bit biased by saying 25 because that's exactly what I'm going to for Ferncrest. And Ferncrest operates like a hotel. It is seasonal though. And so right now you're right. I mean, we have a full-time cleaner and a full-time maintenance person. So we have two full-time people in Promised Land. And in the wintertime with just the recs at 10 units, yeah, there's not as much to do. We do have them doing more prep work, even though Ferncrest is closed for the season, there's stuff for them to do over there. So it is a little bit, it's not an apples to apples comparison. But during the summertime, that town, our units in that town, our keys in that town is 35 between the two properties. Yeah, and that feels like- And then we'll have, we have a GM, we have people- Yeah, that's why to me, it's almost like- It is a good number. 35 gets to the point where it's like, yes, you can definitely afford a good well-paid general manager, a housekeeping cleaning staff, as well as a maintenance person. And you can't understate the need, again, for that real-time on-call maintenance person to be around because, again, the stakes are so much higher in hospitality in terms of the expectations of the guests. Yes, you want everything to be perfect, but there's going to be things that unexpected. You don't know when a... There's nothing preventative that you can do to assure that a faucet doesn't leak, a toilet doesn't leak, that a breaker doesn't get tripped. Maintenance is huge. It's huge. Yeah. We have that. And so we have that at the Rex. We have Sean, who's like, he's been with us for a few years. Amazing. We have him five days a week. And whenever he's there, it's a huge relief because, yeah, any issue, even sometimes it's just even customer service, maintenance showing up to address something that is so minor, or even if it is an issue that can't be fixed right away, having somebody show up is what makes a difference between them being okay with it versus not okay with it, even if it is an issue that's not getting solved right away. And I agree. I think right now that is a pain point, even though we're in the city with Society Hill Hotel. We have all these staff downstairs running the restaurant, but they're not maintenance, nor do they want to be, rightfully so. But when we have an issue, we have to scramble to find somebody. Even though, again, there's people everywhere, you still got to find the right people. You got to find the plumber, you got to find the electrician, you got to find this and that and the other. And it definitely... Honestly, I don't think... I think we have to grow if it's going to become a more successful, sustainable business. I think we really got to figure out over the next year, what is that next step for Society Hill Hotel? Because even just talking about this now, it's so clear that those types of limitations, even if we were to ever decide to, say in the future, we were to sell it. I think size is going to be a factor in the acquisition from another party that is going to know the same challenges with it. So yeah, there's a lot of reasons why we probably should look at that more closely. Yeah, I agree. All right. So we think that it's 35 units we're saying is the magic number. All right. You got it. 35. I think that makes sense. That is what I'm doing in Promised Land. And I think actually that is the number because that's also where you have a bigger unit count also helps with marketing. If you're going to spend money on marketing something, and then to not... The same input for marketing and for the time that goes into it is the same whether or not you have 10 rooms to sell or 35 rooms to sell. And so I think that's a big factor in how we are looking at all of these things. It's like input output for our time and effort. And I think 35 seems like the number. Without question. And that's why I'm excited about SocietyHill Hotel because we have a really good foundation right now, and I want more. And maybe more is not necessarily a new project in new location, but maybe it's more of what we're already doing and a bigger base here because we've already invested so much time, effort, customer reviews, and have had so many stays. We already have the branding dialed in. We already have the look and the feel of the building, the materials chosen. How much better is the output for us if we were just to find a way to carve off another 10, 15, 20 rooms for SocietyHill Hotel, as opposed to taking those efforts and directing them to a new project? You sold me. I think it's a must. I think that sounds very smart. I think that we were looking at, for anybody that's listened to this knows, we've been looking at other projects. We've had a few that we've considered. We had a podcast episode about some down by the shore. And I think it's a good thing that none of those came through, came to fruition because I think the next step is to try to grow this. You're right. The brand is there. The foundation is there. Let's try to make this thing bigger. I love it.