StreetBeats : Expert Insights

Hospitality Real Estate in 2020 with Carlos Rodriguez Sr. | StreetBeats Ep. 54

Darren Powderly is joined by Carlos Rodriguez to talk about why he values online real estate syndication and why he's still focused on opportunities in hospitality.  

by Shawna Wright-Smith
August 28, 2020 ·

CrowdStreet’s Darren Powderly is joined by Carlos Rodriguez, CEO at Driftwood Capital, to talk about what the second half of 2020 will look like for hoteliers, why he values online syndication, and why he’s still focused on opportunities in hospitality.  

Browse the Marketplace

Darren Powderly, Co-Founder & VP Capital Markets

Darren founded CrowdStreet in 2012 after identifying the need to radically improve people's access to commercial real estate investments via technology. Over his 20+ year career, Darren has transacted billions of dollars’ worth of commercial real estate investments and enterprise software contracts. Darren is a driven leader who loves building relationships based on mutual success. In addition to building businesses, leading teams and advising a prestigious list of national clients, Darren has personally owned commercial real estate, syndicated investment groups and developed properties from the ground up.

00:00:05    Hello everybody. This is Darren Powderly, co-founder at CrowdStreet. Thank you for joining us for this edition of StreetBeats. My guest today is Carlos Rodriguez. He's the CEO of Driftwood Capital in Miami, Florida. Carlos is the founder of Driftwood Capital and he has grown his firm into a pretty large owner and operator of hotels nationwide. He both develops as well as acquires, as well as lend money to other hotel operators. Uh, across the country. He has 5,000 employees nationwide. They own about 70 hotels and about 13,000 hotel rooms within those hotels. So Carlos is certainly a Lieber in the hospitality industry nationwide. Carlos, thank you for joining us today and welcome to StreetBeats. Why don't you tell us a little bit about yourself?  

00:00:53    Well, first of all, thank you very much Darren, for inviting me. Um, it's always a pleasure and honor to have been invited. Um, I've been in the hotel business now, uh, 34 years. I started in 1986, uh, with my first hotel with my father, um, back in Costa Rica. Um, we moved to the States in 1996 to f uh, when I founded my company, I merged my company, uh, with, uh, the company, the hotel platform for Lehman Brothers, uh, which was Driftwood Hospitality Management. I merged my company, um, back in 2003. I started growing, uh, driftwood Hospitality Management, which was the, again, the Lehman Hotel platform until Lehman went under in 2008. Then we bought 'em out, we bought their interest out, and, uh, we restructured the company. And then, uh, in 2015, my son, Carlos Jr. Joined us and that's when we formed this new group, uh, which was a first name, driftwood Acquisitions and Development. And it was just now rebranded to Driftwood Capital. Um, and basically we formed now three funds. One is a hotel acquisitions fund. We have a hotel development fund, and then we have, uh, what we call Drift Lending Partners, which is a hotel lending fund.  

00:02:15    I have one question for you. Since you're, um, since you're in Florida and a lot of your properties are in Florida, you know, what, what draws you out of Florida? What causes you to go to San Diego or to Utah? So you had, you know, several and, and other areas around the nation. Mm-hmm.  

00:02:32    <affirmative>. Um, we are, you know, and this is I guess from when we became part of Lehman back in 2003, uh, the way Driftwood was born, uh, we're opportunistic in nature. Mm-hmm. <affirmative>, in other words, we go when the numbers make sense. Yeah. What we do is we look at the, what's available in the market, and we underwrite it, and quite frankly, we underwrite, I don't know, every year, easily over 200 and 250 deals, and we end up doing five or six.  

00:03:03    Makes sense. How does that relate to the new three of the different funds you have, the development fund, the acquisition fund, and then the lending fund. And, uh, two, so two-part question. How does your opportunistic view relate to those three, you know, um, vehicles and then also looking forward, which vehicle do you think is going to, especially second half of 2020 is gonna see the most action, you know, where you think you'll be the  

00:03:28    Busiest? Okay. Um, second half of 2020, the one that I'm seeing a lot of action for is a lending fund. Mm-hmm. <affirmative>, because there's a lot of hotelier right now in need of money, in need of rescue capital. And, uh, you know, and what we're finding is a lot of lending institutions are worried about the hotel industry today. So they're either shying away from lending to hotels, or if they do lend, they want to go hand in hand with a group like ours that understands the hotel industry and that knows what to do with it. So they associate themselves with us. So, for example, we just closed the deal, uh, literally two days ago, uh, on a beautiful property, uh, where the, a lending institution came to us, and probably we'll take it to CrowdStreet later. Uh, but <laugh>, you know, we, we'll talk about that.  

00:04:17    But anyway, a institution, um, brought it to us and, uh, said, you know, that they would like to, for us to take a piece of it. So we basically ended up lending on, on that particular hotel mm-hmm. <affirmative>. Uh, so we see a lot of opportunity in that particular fund in the next, uh, six to 12 months coming along because of the need in the hotel industry for financing and because of the dislocation in the capital markets that are exist today from the lending institutions. Uh, but we also see a lot of acquisitions opportunity in the acquisitions fund. Uh, we're seeing opportunities like we haven't seen before. There's a lot of hotels, uh, that are going unfortunately through a lot of, um, hardships and, uh, you know, they're not being able to meet their debt service at this present time. So, um, that's where groups like us that are opportunistic, that ha are well funded, can come in and basically, uh, acquire hotels at deep discounts. For example, I have one under contract right now, uh, that we should be closing on 60 days or so that the original owner had invested 61 million into it. They put in 14 million more total of 75 million, and I'm buying it for 29 million. Uh, uh,  

00:05:38    You bought that directly from the bank. How do you, how do you get that steep of the  

00:05:41    Discount that that's from the bank and, and the bank is taking a hit too? In the development fund? There's also a, an interesting, uh, opportunities showing up because GCs right now are not as busy as they used to. So they're not, you know, they're, they wanna keep the lights, uh, on and they want to pay the payroll and, and they want to keep going. So now the markups on their, uh, uh, you know, on their, uh, contracts are not as high. The subs by the same token are also materials costs are going down. Like, for example, energy costs are going down. So all that translates into a lower cost of construction. And that coupled with the fact that now we're getting access to parcels of Allander that would be AAA locations, uh, that before would've been priced out of our range, and that now we can buy, uh, makes it very attractive and very interesting for the development fund.  

00:06:40    So, quite frankly, I am, I would say to you that all three funds have great opportunities as long as you have, uh, are are well capitalized. Yeah. And, you know, to expand further, because I don't want to Lieb anybody with a taste that, you know, hotel industry is risky, let's say. Mm-hmm. <affirmative>, you know, the hotel industry is very generous, and obviously there is good times and bad times in the economy mm-hmm. <affirmative>, and there's cycles. And as long as you structure the deal, right, and you capitalize the deal the right way, you know, you should be fine and you should be able to get through these times. Example is, I bought, uh, a Crown Plaza in, uh, in, uh, Denver back in the height of the previous recess, you know, be before previous cycle in 2007, 2008. We didn't give dividends for two or three years because it was, you know, we went into a down cycle. We ended up selling it in 2015 for north of 17% i r r to the investors, net to the investors. So as long as you have staying power and you're properly structuring your capital, and you have everything done the right way, and with the, the right group, with the right, uh, sponsorship group, um, you should be fine. Yes. Will you be having a couple years of, of pain where there may be no dividends? Yeah. But overall in the end, you should be doing fine.  

00:08:05    Yeah. Makes sense. Um, I think there's gonna be tremendous opportunity out there for a group that's well capitalized and, and, uh, position like you. Let's talk about your different fundraising strategies. Uh, you have raised capital from friends and family, uh, then you've raised capital from e B five. You have institutional background with your relationship with Lehmans who clearly have institutional relationships. And then, uh, you now are now, you know, um, a a Lieber, an early sort of pioneer in online syndication in partnership with CrowdStreet, which we're thankful for. Correct. So, um, tell us about the different sort of, you know, uh, fundraising strategies and, and why you like online syndication.  

00:08:46    Well, I see online syndication in our relationship with, uh, CrowdStreet as strategic for us. Uh, we see that being the future every day more and more, uh, there will be more online syndication. Um, I, I honestly see the future of your company, uh, being an amazing, uh, future. Uh, because every day as people learn more about online syndication and get educated on it, um, you know, people will be able to place money through you in a cheaper form, you know, uh, which saves cost to all of us, and at the same time gives better returns to the investors. Um, so that's why we were early adapters or early users of, of that platform and of you guys working in conjunction with you guys is because we see great future in it. And so far we haven't been proven wrong.  

00:09:37    So as we, as we sort of, you know, wrap this up, Carlos, why hotels, why now, right? Because Mo most people would think to themselves, oh, I'm, I wouldn't touch a hotel right now because nobody's staying in hotels and nobody's traveling. Right. But you have to have that contrarian view and look to where we're not gonna be in this pandemic forever, uh, for the second half of 2020 as your, your, your pipeline, uh, presents itself and you seek, seek deals. Like why hotels? Why now?  

00:10:08    Well, you know, I, I always like to say, you know, remember what Warren Buffet says, you know, one of the greatest investors of all time, you know, buy when everybody's selling and sell when everybody's buying, you know, uh, don't panic, you know? And, and one of the things with hotels is, you know, there's this thing that I call the cabin fever effect mm-hmm. <affirmative>, which is that after you stay at home for a certain period of time, uh, you and your family and your kids are gonna want to travel and go somewhere. There's always gonna be a need for personal interfacing with people, you know, face-to-face meetings. So as much as technology has advanced, there's always a need for going and shaking hands and having dinners and, and meeting people and socializing with people, uh, on the business side. So the best thing I can say to people is, this two shall pass.  

00:11:02    I mean, right. I remember in, in, in nine 11, nobody traveled for, for six months, and then after a while, you know, the, you know, uh, certain protocols was established and people started traveling again. Mm-hmm. <affirmative>, um, the same thing. I mean, people have very, um, short memories. Yeah. In a few months, when a few years, things will start again. So we're underwriting when we buy things. Now we're underwriting to get back to 2019 numbers in two and a half years. And in the meantime, we're in the meantime maybe losing some money for the first year and then breaking even and then ramping up.  

00:11:38    Well, Carlos, thank you so much for joining us. We've got a wrap right now. We really appreciate it. Again, uh, Carlos Rodriguez, CEO of Driftwood Capital in Coral Gables, a a, uh, sub or submarket of Miami. Thank you so much. It's always great to speak with you, and we're proud and, uh, honored to be a partner with you as you, uh, continue to build your business. And, uh, thanks everyone for joining us. Stay healthy. Thank you. And, uh, we'll see you soon.