The Construction Insiders Podcast: Season 2, Episode 1
Overview
Join us as Nicky Unkles and Sabrina Gleizer delve into the intricacies of luxury hospitality markets. From the regulatory landscape in New York to the demand-driven growth in South Florida, the business-friendly environment in Texas, and the challenges of building in Los Angeles, this episode offers valuable insights into the world of high-end real estate investments. Nicky and Sabrina share their expertise on navigating these markets, optimizing project efficiency, and meeting the expectations of discerning luxury consumers. Whether you’re an investor or just interested in luxury real estate, this episode is packed with expert advice and industry knowledge.
Podcast Transcript
[00:00:00] Jessica Busch: Today, I would like to welcome Nicky Unkles, who leads Cumming Group’s Hospitality Division, and Sabrina Gleizer, Managing Director with BDT & MSD Partners, that’s a mouthful, whose real estate equity strategy focuses on differentiated assets and platforms in high barrier to entry sectors and markets welcome both.
[00:00:20] Sabrina Gleizer: Thanks for having me.
[00:00:21] Nicky Unkles: Thanks for having me.
[00:00:22] Jessica Busch: Of course. So if you both are up to it, I would like to do a deep dive into four key luxury hospitality markets and discuss the nuances of investing and building in those those regions. You both are coming at this with very different perspectives, so I think it should be An interesting conversation and lead to some hopefully key takeaways for our listeners on what’s going on in, in those regions.
Because we’re here in New York, let’s just start there. Nicky we’ve worked together long enough. I’m not going to dance around issues, but when it comes to regulations in New York how it’s impacting hospitality. In a nutshell, can you give us a quick overview of what has changed? What’s the impact?
What are you seeing? Just to give us a good intro.
[00:01:11] Nicky Unkles: A good starting point would be the Waldorf Astoria. It’s a Goliath project, 1. 8 million square feet. It goes by itself. It’s the Waldorf Astoria. It’s not a Waldorf, it’s the Waldorf. So that was built, Pre 21 regulation for the monitorium and new built hotels.
And it’s proforma effectively was when, luxury condo within a luxury hotel building was hot still is. So the proforma of, ultimately converting 400, 1400 plus guest rooms to 350 condos and 377 guest rooms probably wouldn’t have changed any. had it happened after the fact. And moreover, the hotel itself is probably one of the most landmarked buildings in all of New York City.
So if I use that as a starting point, um, the other point I’d like to pick up on is the the crown building with Amman. We weren’t necessarily involved in the Amman, but we’re actively working on behalf of a buyer for one of the penthouse units. And it’s a true white glove, gut renovation of a brand new apartment.
And there’s an inordinate amount of money, millions of dollars being spent taking down MEPs to reduce the size of the plenum above the ceiling just to gain a couple of inches. Buyers want maximum ceiling heights. So that’s within an existing building where floated ceilings are restricted, right?
The last point would be Phuket’s purpose built, last new build hotel in all of New York City. Its suites and penthouses were highly designed by the design architect Stephen B. Jacobs Group, and the interiors were done by MBDS, Martin Berdinsky Design Studio. Highly designed, but moreover for today’s
[00:03:03] Jessica Busch: So when we’re talking about the new regulations and the impacts, what are you seeing currently with clients for the impacts with the new regulations? Is it impacting how they’re building? Is it ROI skillset? What are these challenges we’re faced with?
[00:03:20] Nicky Unkles: So, the days of, Early COVID deals to be had in properties was short lived and they were all sold very quickly when properties were empty and vacant.
So the push on developers was to effectively reopen those properties, as quickly as possible and as efficiently as possible and get heads in beds. Any CapEx programs were pushed and, a lot of these buildings are very tired, and it’s only more recently we’re now seeing a wave of CapEx programs coming online to renovate, what are now very tired properties.
[00:03:52] Jessica Busch: Are you seeing any hesitation with developers right now because of the new regulations, or is that not a factor in any of this?
[00:04:00] Nicky Unkles: It’s challenging because, we’re working within existing historic properties which are inherent, have inherent risk, whether it be abatement, whether it be survey locations, we come across buildings and, as built drawings, can’t be relied upon, you can’t assume anything, you have to verify everything, you have to de risk, mitigate.
Early on by doing exhaustive surveys, deep surveys, survey a branch of the building, you can’t assume that a column location above and below is going to be consistent. I’ve seen it in New York, I’ve seen it in Miami, that column locations, these buildings were built 80, 100 years ago and column locations vary and that impacts
[00:04:36] Jessica Busch: Major surprises.
[00:04:37] Nicky Unkles: It impacts a lot of things in drawings.
[00:04:39] Jessica Busch: Yes. Okay. Okay. Now, flipping to you, Sabrina, your firm has significant investments in major growth markets like Texas and Florida, but you’re not here in New York. Why is that?
[00:04:53] Sabrina Gleizer: It’s, that’s not to say that we’ll never be in New York. We’ve spent quite a lot of time thinking about investment opportunities in New York, my perspective is a little bit different than Nicky’s in that, we’re investors.
We’re fundamentally investors at BDT and MSD. We’ve got a 16 billion real estate portfolio. And in the context of our real estate portfolio, we think about real estate investing across a couple of categories. When we think about what deals to pursue, you start with fundamentals you think about capital markets.
And you think about costs. So growth fundamentals, capital markets costs. And as you think about those three things in the context of New York fundamentals are mixed. Rates are holding in New York hotels or, anybody who travels to New York knows hotel rooms are super expensive.
So rates are really holding on the occupancy side there’s still quite a bit of weakness. We haven’t recovered to pre pandemic levels in terms of occupancy in hotels certainly not to pre COVID levels and the international traveler that has really buoyed the New York market hasn’t really returned on when you combine all of those elements of base fundamentals with capital markets, meaning lending markets, investment markets that are still quite dislocated, although recovering a bit with, a little bit of easing and rates, but have are still quite dislocated.
And then when you think about costs costs are wildly expensive. New York is extremely expensive particularly when you think about land costs as a percentage of All in cost in a project, particularly when you compare all in cost to other markets where we are heavily indexed, like Texas, all of that paints a really challenging picture for an investor in New York.
And that’s really why we haven’t spent a lot of time here. And, if you look at it, a handful of the data points No, depending on the deal, depending on the luxury, depending on the level of luxury, depending on the specific micro location, it could cost as much as 5 billion a key to build a hotel in New York. That’s an astronomical number.
[00:06:38] Jessica Busch: And to try to make that back
[00:06:39] Sabrina Gleizer: to try to make that work. And to try to make that work, you have to believe in cap rates. Compressing to levels that are for us hard to underwrite. Or if it’s in the context of a condo, a hotel within a, with a branded condominium associated with it, you have to believe that the sellout of those condos are stratospheric.
So all of that makes it challenging. On the flip side New York is the center of the world. New York has been the center of the world. New York will always be the center of the world. I’m a New Yorker. I’ve lived here my whole life. Given that there are investors, there are brands, there are groups that will continue to put major capital into this market.
Brand presence is a huge piece of it. So when you think about brand presence, marketing presence, that will drive deals like the one that was announced recently that Jeff Sutton did, where Gucci were sold to Gucci and separately to Prada to buy their own buildings at very big numbers.
And then, the deal that Nicky referenced, the Amman deal, that same seller sold to the Amman brand to develop their own brand presence. So big deals are still happening here, but it’s really expensive.
[00:07:38] Nicky Unkles: Yeah. And just to compound What Sabrina was saying when we talk about escalation we saw double digit escalation for years.
So when we are preparing a budget to help manage expectations, we like to tell clients what the real number is. And our number is never very well received, but the reality is it’s usually the right number. But sometimes we’re tabling numbers, or most of the time we’re tabling numbers that are now, 40 percent higher than they were pre COVID.
That’s the type of, impact we’re seeing in construction costs.
[00:08:07] Jessica Busch: So it, it sounds like some are staying away at the moment but Nicky, how Are there examples that you have from your day to day experience of different techniques or technologies that are being used to help maximize the ROI and really optimize project efficiency?
What are you seeing?
[00:08:25] Nicky Unkles: Just to labor the point, what I said earlier, as we’re in older buildings, um, the extensive, exhaustive, intrusive surveys. I want to go in and probe a building and it’s going to be like Swiss cheese when I’m finished with it, because the more I know about that building upfront, the more ability I have to help mitigate things in advance.
So again, survey and don’t, Cut corners when you’re serving a building
[00:08:52] Jessica Busch: The true due diligence. Okay.
[00:08:55] Sabrina Gleizer: And I think, Nicky and I got to know each other through, my firm retaining Nicky Firm to help us think through some of these challenges. And you guys have been such great thought partners for us along the way in a variety of our projects and I would say from an owner’s perspective, When you get the numbers back, don’t look at it and say, I don’t know, that just feels too low too high, that just feels too high, escalate, I don’t know, it can’t be.
And I think owners make mistakes when they take numbers that they get and feel like they’re intuitively too high. We will always add, no matter what we get from Nicky, we’ll always add more contingency.
[00:09:23] Jessica Busch: You’ll still add from Nicky.
[00:09:24] Sabrina Gleizer: Still add, more contingency, more escalation because you are, I’ve never seen a situation where you come in below.
Yeah. Ever. They’re just things that you can’t anticipate.
[00:09:33] Jessica Busch: Especially with the aging properties and things like that. So there are a lot of surprises. Moving geographically, let’s move south. Let’s talk about South Florida. And this is a hotspot for you, Sabrina. So what are some key factors driving your investment: in luxury hospitality down there.. Why are we still hearing about South Florida?.
[00:09:57] Sabrina Gleizer: Yeah. South Florida is in the news and is going to be in the news for a very long time. And it’s really all about the demand story there. People are moving to South Florida in droves. People are staying in South Florida. The luxury consumer really loves the lifestyle for a variety of obvious reasons.
Obviously the tax characteristics, which get a lot of attention, but it’s also a vibrant urban environment with fabulous culture, great restaurants, great museums, amazing weather. And I think as more and more people move down there, there’s this sort of flywheel effect of more and more people want to move down there.
And you’ve got major investment from some of the most prominent thought leaders, in the world, like Steven Ross, who’s driving, major development on there in West Palm, Ken Griffith, obviously. There’s just an enormous amount of. forward momentum in that city and we are great beneficiaries of it.
The good old saying in real estate it’s better to be lucky than right, or better to be right than luck. It’s for us, we were both lucky and right in our Boca Raton deal where we bought an asset in 2019 And we put, I’ll talk about a little bit further, but we put in 350 million into this asset to completely reposition it.
And with the post COVID tailwinds has just been a phenomenal investment for us.
[00:11:02] Jessica Busch: And so you were heading the right direction. I want to talk about some of your projects down there.
[00:11:06] Sabrina Gleizer: Yep.
[00:11:07] Jessica Busch: Can you give me some examples? What are you working on? How are those panning out?
[00:11:10] Sabrina Gleizer: We’ve got two very big deals in South Florida.
They’re two of the largest Development deals broadly in the entire state. One is on the West Coast. One is on the East Coast. So the one on the West Coast is Naples Beach Club. Nicky and his team have been consulting with us on that project for a while. Naples Beach Club is on 125 acres. It’s in Naples.
It’s an unbelievable growth market. Massive tailwinds, just, so much momentum, so much in migration with retire, retirees and post retirees who are moving down to that region in southwest Florida. It gets less attention than the East Coast.
[00:11:41] Jessica Busch: I was gonna say, I’m surprised to hear you say that.
[00:11:43] Sabrina Gleizer: Yeah, it just, it gets less attention, and I think it’s because the in migration isn’t New York style in migration. It’s been historically Midwest style in migration, incredible wealth characteristics of the buyer that is moving down there. And people just love the lifestyle. It’s a lot calmer.
It’s really focused around the outdoors around fishing, around boating very coastal style living much more low key, much less dense, much, much less dense.
[00:12:08] Nicky Unkles: Got a name drop here. I was on a panel last week and Richard Gere was talking about luxury and he explained luxury was quiet.
[00:12:15] Sabrina Gleizer: Yeah.
[00:12:16] Jessica Busch: Yeah. So it’s quiet luxury down there.
[00:12:18] Sabrina Gleizer: Yeah. It’s unbranded. It’s highly casual. The word I heard many years ago when we first started looking at that market was barefoot billionaire. It’s a market that, that just is not flashy, is not showy and people want to be around that.
[00:12:29] Jessica Busch: Different from what you would think the stereotypical kind of Miami. Lifestyle.
[00:12:33] Nicky Unkles: The complete opposite. Yes.
[00:12:34] Sabrina Gleizer: It is. There are different pockets of lifestyle in each of these markets. And there are lots of different, both of these environments, both West Coast and East Coast, are evolving so much with the mass and migration coming down there.
So different kinds of populations are being served.
[00:12:47] Jessica Busch: And it will continue to change.
[00:12:48] Sabrina Gleizer: It will. And that’ll be a huge, that’ll continue to be a huge opportunity for real estate investment.
[00:12:52] Nicky Unkles: It’s very different markets.
[00:12:53] Jessica Busch: Yeah.
[00:12:53] Sabrina Gleizer: Yeah. So for us, West Coast of Florida Naples Beach Club, 125 acres, a thousand feet of frontage right on the Gulf.
Unbelievable real estate. If we had to put a pin in what we wanted to buy him, obviously not an accident. We bought it. But if we had to pin put a pin in what you wanted to buy, it would be this site. So we’ve been under construction for a couple of years now. We are opening next year. So we are, knock on wood.
We’re so excited. It’s a The investment is anchored by a 220 room, four seasons resort hotel on. We’ve also got two phases of residential. The residential is on the beach side of the residential is also on the golf side on the beach side. We are 90 percent plus sold out. We’ve done exceptionally well.
We’re super proud. The Most expensive condo that ever traded in Naples before we got there was like 1, 800 a foot. Our condos are now trading north of 4, 000 a foot. We’ve completely reinvented the market down there very different number thankfully for us. But we’ve completely reinvented the market.
And the way we were able to reinvent the market is by delivering a product that didn’t exist for a customer that very badly wanted it. And those are really the kinds of supply dynamic demand. Excuse me, supply demand dynamics that we really look for as investors come to markets where you can create something people very badly want and where it doesn’t exist.
And it is very hard to make it exist given the supply constraints of these environments.
[00:14:10] Jessica Busch: So talking constraints, challenges, are there challenges in Florida right now? Because from what you hear on the news, it’s Boom boom. Everything’s easy breezy.
[00:14:24] Nicky Unkles: Huge challenges in Florida. One of the biggest challenges we come across on a daily basis is each town, city, county they all have their own legislative jurisdiction whether it’s legislative, whether it’s, land use, whether it’s, building permit.
So you’re dealing with, Every agency you deal with is an entirely new process, unique to itself. And then you compound that, further compound that with the fact that there’s so much activity in Florida, whether it’s hospitality, renovations, new builds, whether it’s condo, cookie cutter, luxury, ultra luxury.
There’s so much happening that staff resource level, they are completely unindated. So it’s massively challenging trying to get projects permitted. And we’re actively, stepping in and helping supplement as an owner’s advisor, project manager to, fulfill the role that was probably more traditionally the general contractor and subcontractor to help coerce and push these things through.
[00:15:31] Sabrina Gleizer: Yeah, I would echo that. For us there, there continue to be immense challenges and on the entitlement side. This notion of as of right approval has really gone away. It just doesn’t really exist anymore. You have a zoning box, but the level of discretion that local municipalities have over what you build is immense.
And I think it’s a reaction to the Changing political environments locally. In some cases, significant anti development sentiment
[00:15:55] Jessica Busch: In Florida?
[00:15:56] Sabrina Gleizer: In Florida for sure, depending on the market, depending on the sub market, depending on the region. It’s really difficult to build. There’s a lot of not in my backyard kind of behavior, and I think it exists.
It’s really everywhere across the country. And in many cases, rightfully, people want to maintain, the lifestyle that they want. I live in a neighborhood that is completely landmarked and it creates a lot of value for me. Not just in terms of my home value, but just in terms of my lifestyle, because you can’t put a luxury high rise that’s 30 stories next door to me.
However, there’s always a delicate balance between maintaining lifestyle and not living in yesterday’s reality in terms of what people want. So entitlements, huge challenge. Labor. For us, massive challenge. And I agree with everything Nicky said. The only thing I would add is particularly with ultra luxury product, particularly with ultra luxury hospitality and amenitized residential, the subcontractor universe you need to deliver that level of execution is extremely particular and specific.
You’re delivering a residential apartment for a billionaire, and the expectations are very high,
[00:16:55] Jessica Busch: Right.
[00:16:55] Sabrina Gleizer: And the level of expertise that is required to do that is very high. It is very limited. Supply of labor, particularly skilled labor is a challenge.
[00:17:04] Jessica Busch: And I know we, we’ve touched on this a little bit before with you, Sabrina, but so when, as a developer, what is your thesis?
What are you looking for? Because these markets, the barrier to entry seem high. I know that’s what you look for, but in a broader scope, what are you guys looking for to make it work?
[00:17:21] Sabrina Gleizer: That’s why we don’t, we’re not doing a hundred deals. We’re not a production builder we are very choosy and when we pick deals we do really big ones, and we build them in markets where we can make a huge impact and drive, significant whole dollar profit.
So we are much less concerned with IRR than we are with dollars, profit dollars, and we look at where we can invest in scale, and where we can invest in a way where our very Unique capital. We have long duration capital where our very unique capital provides you with a competitive advantage on the buy and where our very unique skillset, our highly differentiated skillset, we have a fully vertically integrated team on the hospitality development side.
Where our team. Can also give us a competitive advantage on the execution. So we’re pretty choosy about where we go and what we pick. It always starts with the macro market for us. It always starts with where are their demand tailwinds? Where are their supply constraints? Where are their high barrier to entry environments?
You always start with macro. So for us, that’s why we’re heavy in Texas. That’s why we’re heavy in Florida. And then you go to the second and I think just as important, but I think Aspect, which is the micro location. So we’re not just in Texas. We’re not just in Dallas. We’re in one particular street in Dallas, and that’s the only place we wanted to be. And when we found it, we went very big.
[00:18:38] Jessica Busch: So let’s talk about that because I was just going to jump to Dallas in the Texas area. And so you’re talking about this one street in Texas. Why are you in Dallas? Why have for we’ve heard why you’re leaving out New York for the moment. Why Texas? Why Dallas?
[00:18:52] Sabrina Gleizer: I’ll say for many of the same reasons as we’re heavily invested in Florida, in that the demand is there in a massive way. Massive corporate and migration, lots of companies, and you read it every day in the news, giant companies relocating their headquarters to the state of Texas Dallas in particular Unlike some other areas of Texas has a wildly diversified economy, so it’s not heavily indexed oil and gas or heavily indexed to tech.
It is very diversified with lots of different kinds of organizations that are moving there and moving their people there. So we were very attracted to Dallas in particular. The one I think major difference between Florida and Texas, at least in our experience, is regulation. Texas is a really business friendly environment.
It’s, it’s very collaborative. It’s very cooperative. When you have an as of right approval you can proceed as an owner with a high degree of confidence that you can actually build that. And it takes, it doesn’t take a lot of time. I’m not trying to do an infomercial for Texas, but it’s a, a very refreshing place to work and to develop because things there, there haven’t been surprises for us.
There are immense challenges, but there aren’t big surprises in terms of how we’re dealing with local municipalities.
[00:19:58] Jessica Busch: And so what differences are you seeing then between something like a South Florida and a Dallas? Texas environment. Are we we’re talking about, I think you mentioned workplace migration versus, luxury hospitality or retirement.
What are some of the differences you’re seeing between South Florida, Texas environment?
[00:20:18] Nicky Unkles: I could jump in here with the money cap on again the cost to build in Dallas is a lot more favorable than it is in Florida and certainly in New York on the Knox deal that we’re supporting Sabrina on There’s, high end finishes is, there’s no paint finish.
It’s all stone Venetian plaster, millwork, ornate plaster. And when it comes to Venetian plaster, I’m I’ve only just finished a hotel, luxury hotel right here in, in Tribeca and the spa was all Venetian. So you know, I was, I had a range in my head of 85 to 90 a square foot for Venetian plaster and that’s a number of plugged and working with trammel crow, the local developer, very experienced developer the immediately.
Picked out the number and said, Nicky, that’s not even close. And I’m like what are you guys seeing? And he said, we’re getting Venetian plaster for 30 a square foot. It’s that big a Delta.
[00:21:15] Jessica Busch: Wow.
Okay. So there’s some major differences.
[00:21:17] Sabrina Gleizer: Yeah. Major differences. But also, look, I think, in, in South Florida this is not our project, but one that we were big fans of given that we’re, significant investors in Auberge, but the Auberge Shore Club in Florida, they just announced their penthouse for 120 million.
The highest price in Florida, like 11, 000 a foot. We’re not seeing those prices in texas, right?
[00:21:37] Jessica Busch: Fair.
[00:21:38] Nicky Unkles: So that’s in Florida, right?
[00:21:40] Sabrina Gleizer: And so the world, so yes, texas is much less expensive, but it’s not like we’re seeing the same revenue profile.
[00:21:47] Jessica Busch: Fair point. Okay. Outside of Dallas proper, where are you guys seeing opportunities?
Where are the upcoming areas that you’re looking at?
[00:21:56] Sabrina Gleizer: We are we’re pretty diversified nationally in terms of where we’re focused. For us it really comes down to those things I outlined before. Where do you have really great fundamentals? Where do you have demand growth?
Where do you have sustainable, underwritable demand growth for the long term? Where can you outperform over time? Where are there Real supply constraints. Where are there significant barriers to entry? And where can we find a micro location that we think is big enough where we can make a big difference and we can fundamentally place make?
So that’s the lens through which we look at investment opportunities. I would say we’re not the kind of investor that says, God, we really got to be in Raleigh. Let’s just go figure that out. So we don’t really approach it that way. We were both, macro in terms of just studying the entire U.S. Map of like, where can we go? And responsive to opportunities that come our way.
[00:22:45] Jessica Busch: So on the flip side, we’ve also seen some stories come out recently about investors pulling out of Texas. It’s too saturated. It’s gonna be too saturated. It’s getting harder to build. Do you agree with any of that?
Or what are you? What are you seeing?
[00:22:59] Sabrina Gleizer: I can speak as an investor, for us, it’s all about building differentiated product. So if you’re a commodity builder, if you’re building commodity multifamily, that’s going to be a trickier dance right now because lots of people are building commodity multifamily and lots of people own, commodity multifamily that’s seeing some degree of distress given where we are in the capital markets and cap rates.
So for us, our project in Dallas has, it’s in the ground right now. We’ve been under construction for about six months. We’re going to be done in about two and a half years and we are thrilled with how it’s going. Absolutely thrilled with how it’s going. So we, our project is multifaceted, it’s mixed use in nature.
It’s got a variety of components that are complimentary in what we think is the best micro location in the city. We’re selling condos, they’re selling Extremely well. We have an office. The office is 100 percent free leased. So all of the components of our project that can be de risked are de risked.
And for us, we’re not seeing that broadly speaking in Texas, but we’re also not doing commodity development in Texas.
[00:23:53] Jessica Busch: It’s a big difference.
[00:23:54] Sabrina Gleizer: Yeah. It’s a big difference.
[00:23:56] Nicky Unkles: I would I would add that the product that BTD and MSD together with Trammell are providing is something that. Dallas just doesn’t have right.
It’s true ultra luxury. And there’s a massive shortfall of that. Locally, I’ve been there twice to stay in, hotels and, it’s just not there. We’re seeing huge demand for that locally Dallas. The knocks is a very unique location.
It’s basically the Beverly Hills of, the central of Texas. It was the same architect from Beverly Hills that developed what is Highland Park that the Knox overlooks. So the Knox has got this unique aspect that it’s overlooking, single family homes that will never ever block its view.
So it’s a unique, very unique location, the Knox. But more, more locally to Texas we’re seeing, the PGA Hotel out in Frisco. We’re seeing Universal with the theme park. So there’s that A huge growth market in Texas, and we’re not seeing that slow down anytime soon.
[00:24:56] Sabrina Gleizer: And to Nicky’s point earlier about escalations, while Texas on a relative basis is significantly cheaper than some other markets we traffic in, escalations have still been pretty astonishing.
And it’s because of all of the demand that is, is coming to, to the state and to the city for a variety of uses that aren’t just luxury development. That’s like massive infrastructure investment, just like a ton of construction happening. And so that, naturally.
trickles down to projects like ours.
[00:25:22] Jessica Busch: So moving West, let’s hit on Los Angeles if we have some time here. We’ve talked about challenges, everywhere East now in our key markets. What are these challenges that you’re seeing day to day trying to build luxury hospitality in LA?
[00:25:40] Nicky Unkles: Hospitality wise is probably Sabrina can talk about the entitlement.
She’s been there for 20 years. But on the, from the operational aspect of these properties it’s ultimately, minimum wages is a huge factor right now. And, there’s talk, if it hasn’t already been pushed through that, the minimum wage, goes from what was 19 to mid twenties and then continues to be escalated to, 29, 30 dollars
[00:26:02] Jessica Busch: Specifically for the hospitality
[00:26:06] Nicky Unkles: That’s going to have a massive impact on, restaurants.
You’re probably going to see more restaurants closed down, unfortunately. And for hotels, it’s going to be, it’s just going to make it very difficult for deals to be papered.
[00:26:17] Jessica Busch: And so are there other challenges when you think of LA, you think of? the beach and that lifestyle, coastal commission issues.
Are you seeing, how’s that going?
[00:26:27] Nicky Unkles: I’m going to let Sabrina speak to that one.
[00:26:29] Sabrina Gleizer: We’ve been there for gosh, all 15 years now. Not me personally, but our team. Yeah, I know. If only but our team’s been at it for a very long time and they’re, positives and negatives of that.
The negative is we’ve been at it for a really long time. It’s an incredibly difficult entitlements environment. The various steps, the various hoops, Coastal Commission of, we received Coastal Commission approval on our project, the Fairmont Miramar redevelopment in Santa Monica received Coastal Commission approval a couple of years ago.
We’re about to file for our design review approval in the next two weeks, which is the, the last major hurdle for us on the entitlement side knock on wood, but we’ve been at it for a really long time. And it’s not because we’ve, redesigned our project or we ran out of money or, something, it’s just an incredibly, excuse me, difficult environment that takes a very long time with the time and the constituent groups and the amount of input that everyone gets everywhere locally.
It’s, you have to be a long term investor like we are. To make sense of a project like that. So on the positive, once you’re through, you have something that it’s going to take somebody else 15, 20 years to get. You have just an incredible asset in that regard.
[00:27:32] Nicky Unkles: And when you’re through I’m seeing developers that have been in that position, for this entitlement process. Probably the most arduous entitlement process and domestically across the US. And these developers are finally entitling the sites and they no longer have the appetite to develop them and they’re looking to trade them.
Or they’re certainly looking for someone to come in and partner with them.
[00:27:52] Sabrina Gleizer: Yeah, I’m sure there’s a little bit of deal fatigue there after all.
[00:27:54] Nicky Unkles: Absolutely.
[00:27:55] Sabrina Gleizer: And the desire to take money off the table, when you’ve been at something for 20 odd years. They’re I’m sure some desire to recapitalize and capture some value upside and capture a piece of the value creation in the land.
[00:28:05] Jessica Busch: So you’ve talked about some challenges. To put it nicely what are some opportunities? There has to be some opportunities in L. A. What are investors seeing?
[00:28:15] Sabrina Gleizer: L. A. ‘s got so much going for it. Obviously it’s a market that gets a lot of press. There are for sure very real challenges locally.
But the weather’s amazing. The views are amazing. The food is amazing. The culture is amazing. It’s got real, people really want to be there. And people who’ve been there for a long time just, swear by the lifestyle and the culture. It’s a major city. Like New York. Where we started this conversation. It’s a major urban market. It’s one of the centers of the world. It will, it’s not going anywhere. But some of the near term challenges are pretty acute and are things that are impacting how investors are viewing broadly the West Coast. But, I think if you’re a long term player, you view the world through a long term lens and, so many of those micro environments are going to continue to be really, very vibrant and strong. It’s all about finding the small locations that are meaningful in these, large macro environments.
[00:29:04] Jessica Busch: So those acute challenges, we’ve also heard a lot of players in industry moving their properties more into a multifamily situation. Is that part of your guys’s game plan or not? Or is it the long hold is not something you?
[00:29:18] Sabrina Gleizer: Not for the deal that we have. So what we have on the West Coast is we own a hotel. The hotel is called Fairmont Miramar. It’s well known for its bungalows. So we’ve got, it’s just like these really cool bungalows and amazing restaurant. It’s the breakfast C and B scene place.
Our restaurant called fig, where we have this amazing fig tree. So we have a hotel we’ve been working on a redevelopment plan for that hotel, which would include ultra luxury residences and an ultra luxury new hotel. So that’s our plan there. It will not be multifamily residential given the location, but I, I obviously I’m aware of lots of folks who are trying to make sense of assets that are more dislocated,
[00:29:52] Jessica Busch: Right.
So I’ve taken a lot of your guys’s time today and I’m well aware of that. I’m very appreciative of your time, but before we close up shop for today, Anything you want to leave the listener with, how you see the next decade, next five years, how do you think see things shaking out in this luxury hospitality space?
[00:30:12] Nicky Unkles: I’m seeing I see really strong growth for ultra luxury and branded residential. People have gotten a taste for it and, they want more. And when Sabrina’s identifying, buyers, whether it be in Naples or whether it be in Knox, these buyers are buying multiple units across different states.
They like the idea of, locking a door, walking away, everything’s taken care of. It’s low, it’s not necessarily low maintenance costs, but it’s low maintenance to them personal time wise. But I see a still a huge growth for luxury and ultra luxury hotel and branded residential.
[00:30:51] Sabrina Gleizer: Yeah, I completely agree.
It’s core to our thesis. We are portfolio now on the real estate private equity side is about half luxury hospitality. We’re doing more and more. We have a huge appetite to grow our luxury hospitality business and our hotel anchored mixed use development business. And the reason for that is, we are, we love what we see from the existing portfolio that we have.
We love the fundamentals in the business. We think it’s only getting better. And we have a high degree of expertise, so we can execute better than most anybody we know on these deals when we get our hands on them. The only downside is that there aren’t that many of them. There aren’t that many of these locations that are super special.
There aren’t that many projects that many hotels that we love to buy. When we see them, we go hard. But we’re incredibly active for us. One of the things we’re most excited about that’s currently in our portfolio is that we bought a big piece of the Obearish brand and big France fans of that operating company.
And we’re spending a lot of time with them thinking about new ways to help them grow. So I would say we’re spending a lot of time there and we’re spending a lot of time on, on other platform ideas and on single asset opportunities, both in the U S and globally in assets that we think are really special.
[00:31:58] Jessica Busch: Very optimistic, is the takeaway.
[00:32:00] Sabrina Gleizer: We’re in a great asset class, , we’re in a great asset class
[00:32:02] Nicky Unkles: when you’re, we’re lucky. And it’s also, it’s actually it’s fun to be involved in it, right? Yeah. We’re not building the Can’t be fun in it in 95, right? Fun. That makes, get excited about that. But when you’re doing, Auberge in the, Knox, Dallas, so you’re doing, Naples and the Beach, you, Amman, six Senses. These are all amazing brands with amazing products.
[00:32:21] Sabrina Gleizer: Yeah.
[00:32:21] Nicky Unkles: It’s tough knowledge to be excited about.
[00:32:22] Sabrina Gleizer: It’s a really, yeah, it’s a really fun business, highly creative and really challenging because when you’re catering to a very discerning customer, you have to deliver on that brand promise.The expectations. All, every time. And the margin of error is zero. For us flawless execution is like the thing that keeps us up at night really all day long.
[00:32:41] Jessica Busch: On that note. Thank you guys so much for taking the time today and we’ll see you soon.
Thank you.
Thanks for having me.