Happy Friday. This is The Shake 🤝 : the free weekly newsletter that’ll never put you in the predicament that some hotels do…

Here’s what we're dishing up this week:

• Micro-Hotel = Macro-Bullish 🏨 

• Lost In Translation 🤙 

• Weekly Giveaway 🎰 

MARKET RADAR

Micro-Hotel = Macro-Bullish 🏨 

Believe it or not, sometimes bigger isn’t always better… 

Compact hotels such as Yotel, CitizenM, and Pod Hotels are recording astronomical returns while growing in popularity throughout the globe. 

One of the key drivers of the compact hotel trend is the desire for affordable, centrally located accommodations in major cities.

Most rooms are anywhere from 200-400 sqft - designed to provide guests with a comfortable and functional room that maximizes the use of space while still providing all of the essential amenities.

The frothiest of these brands is Yotel. Founded in 2007, Yotel is 30% owned by Barry Sternlicht’s Starwood Capital Group and 70% by Al Bahar family’s Jassim Al-Bahar Group.

The UK-based hospitality management company has 36 properties open or under contract. These projects are a mix of city hotels and nearby airport stays.

The bullish trajectory is derived from claiming numbers like:

• 50% more keys in the same square footage/meters than any traditional hotel

• +40% stabilized NOI

• +25% leveraged IRR

• 5-7 year loan payoff period

The combination of an asset-light business model alongside leveraging third-party investors to build up their development pipeline has the brand eyeing an explosive growth mission to reach 50+ hotels by 2025.

What makes the strategy so sweet? How operationally efficient the end-to-end process can be.

A combination of factors goes into making Yotel an “affordable luxury” stay:

1. Lower construction and maintenance costs: Yotel’s are often designed to be more efficient in their use of space, which can reduce the number of building materials and space needed for each room. This can lead to lower construction and maintenance costs for the hotel, which can be passed on to guests through lower room rates.

2. Reduced staffing costs: Yotel often requires fewer staff members to operate. The rise of technology has made it easier to provide guests with a seamless experience, from online check-in to digital concierge services.

3. Lower utility costs: Yotel’s are typically more energy-efficient than traditional hotels, as they have smaller rooms and use energy-efficient appliances and lighting. Resulting in lower operating costs.

4. Lower food and beverage costs: Yotel often doesn't have on-site restaurants or extensive room service menus, which can reduce food and beverage costs for the hotel. This can help keep room rates affordable for guests who prefer to dine out or grab a quick bite elsewhere.

When asked how proven their cost model is, CEO Hubert Viriot said:

With that type of operational confidence, it's no wonder they launched additional brands like YotelPads and YotelAir to expand their creative niche.

Moving forward, Yotel looks to target old office building conversions for their next sites. Pitching to investors that they can deconvert if things ever get hairy in 20 or so years.

Keep your eyes peeled for more Yotels popping up in your favorite cities.

We’ll be pulling up in a compact fashion 👇️ 

Lost In Translation 🤙 

Let’s face it, almost all brokers have an ego. We all like to talk about the gross sales volume, the clients we’re working with, and (of course) the commission sizes of the deals we’re working on.

That being said, there’s nothing a CRE broker wants to beat more than a fellow CRE broker from another firm. We all have a secret little devil on our shoulder that says “yea, f that guy!” when working on a deal with another broker.

To spin off of that, brokers really don’t like outsiders. Outsiders could mean a wide range of things, but it can best be broken down into three:

1. A residential realtor trying to pretend like they know how to handle a commercial deal - I once had a residential realtor ask me what the cap rate on a lease was. If you have a basic understanding of this part of the industry, you’ll realize how ridiculous that sounds.

2. Brokers from different asset classes/specialty types trying to play in uncharted territories - When brokers deal with someone who markets themselves as one thing and then try to work on a completely different kind of deal, they’re instantly irritated.

3. The third example is going to ring true for some, but not all, and that’s California brokers…IYKYK

You may wonder where this article is going to go from here, and I’ll answer it now. It’s 100% going to be focused on #3. Commercial Real Estate leasing is hard enough to understand, especially for junior brokers.

Let us start with the fact that commercial leases are generally based on a price per square foot. That number is then multiplied by the square footage to equal the yearly rent. Example below:

$20 per square foot multiplied by 5,000 SF = $100,000 per year.

$100,000 per year multiplied by 10-year lease = $1,000,000 lease deal.

That being said, the “pinkies up” California brokers love to find a way to over-complicate things.

Their favorite way? Undoubtedly it’s the way they calculate their leases.

The rest of the country calculates their CRE leases on an annual basis when it comes to the price per square foot, but California calculates it monthly.

Why, you might ask? I think Mr. Chris Cox has the answer.

All joking aside, it does end up complicating things. Though it seems like a small detail, it ends up feeling like brokers are speaking 2 different languages when trying to work through different lease deals.

Since CRE has plenty of cross-state deals, there end up being frustrations from both sides.

From our knowledge, California is the only state where brokers calculate deals this way. The more I think about this, I don’t know which is better or worse, but I do know that both sides can grow increasingly frustrated.

Going back to our last example, you can see how this could be frustrating.

Rest of the USA

$20 per square foot multiplied by 5,000 SF = $100,000 per year

California (This deal would be calculated differently…)

$1.66 per square foot multiplied by 5,000 multiplied by 12 = $100,000 per year

Seems like extra work, but hey I’m from NJ, not CA. 🤷

WEEKLY GIVEAWAY 🎰 

Together With Closing Packs

To end each edition, we will be sending one lucky subscriber a special item!

This week’s item is a Portable Bonfire Kit.

How do you win?

We are going to post a closed transaction with some high-level details and whoever can guess the right sale price, wins.

If nobody gets it right, the closest guess wins. If two people get it right (screw us right?!) we will hook you both up!

Let’s kick it off 👇️ 

This renovated Nashville single-family house showcases over 2k sf with 4 beds and 4 baths. Perfect aura for Friday night square dancing 🤠 

FIN 🤝 If you enjoyed this week's edition, don’t be selfish — share with a friend!

^{DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.}