This is a part of a series of guest posts from our partner Resort Capital Partners.
Tom Burns, managing director for acquisitions at EOS Hospitality, projects an increase in property transactions in the near future and says his company will continue to “focus on transactions where we can create positive outcomes for the parties involved.” At the vertically integrated hospitality investment and management company based in New York City, Burns is focused on new investment properties as well as the asset management of its owned portfolio. In this interview, conducted by David Gaston of Resort Capital Partners, Burns discusses EOS’s origins, his thoughts on its growth and where it is headed.
You worked with EOS founder Jonathan Wang in the past and have been with him since 2017, when he started EOS. EOS had four hotels at the end of 2019 and now your portfolio is generating close to $600 million in revenue at over 40 hotels with 3,000+ employees. Can you tell us a little bit about your first conversation with Jonathan about joining him?
I had coffee with Jon at a Le Pain Quotidien on a Friday morning. I was looking forward to catching up with Jon as we hadn’t seen each other for the better part of a year. I had some exciting news to share in that I had traveled to Brazil recently to look at real estate opportunities there and that I was planning to propose to my girlfriend over the holidays. Jon brought his fair share of exciting news to our coffee and proceeded to lay out a vision for a preeminent, vertically integrated hospitality investment platform, which included an opportunity for me to join him on the ground floor. I was excited to pursue an entrepreneurial path with someone that I respected immensely both on a professional and personal level. It seemed reckless for me to say “let’s do it” at the first meeting so we left it at something along the lines of “excited to continue the conversation.” But in the background, I skipped sitting for the GMAT that weekend (something that would have likely taken my career in a very different direction from where I was at the time) and told my girlfriend all about it. I may have acted a bit coy at the beginning of our next get-together, but I was all in shortly thereafter. We were off to the races in early 2017.
Tell us about the first few years.
Incredibly exciting. There are opportunities and challenges every year, but they seem starkest at the outset. The first major hurdle we had to get over to move the business forward was establishing credibility in the market. I remember Jon sitting in some kind of storage room or closet and I was sharing an unused conference room with Simon Mais, our chief operating officer. We had no website or anything outward facing at the time. We had capital, Jon’s reputation, and we could demonstrate hard work and effort to a seller/adviser, but it still felt like an uphill battle. We were able to put it all together and completed our first acquisition in September 2017, when we invested in the Hamilton Hotel in downtown Washington, D.C. It was a great fit within the core framework of our investing philosophy: high–quality real estate (fee simple, historic hotel located five blocks from the White House and across from one of the largest parks in D.C.), high barrier to entry market (D.C. had one of the smallest supply pipelines among Top 25 urban markets in the US at the time) and attractive asymmetry (downside protection from the quality of the real estate and upside opportunities including a complete repositioning of the hotel’s lobby and food and beverage program, brand optionality and potential to connect the hotel into a unique event venue through the adjacent fraternal temple).
2017 was an exciting year for us and put together a lot of the early building blocks for EOS. 2018, on the other hand, was an extremely frustrating year. We saw revenue per available room and/or net operating income begin to roll over in many of the top urban markets due to new supply growth, while private market asking prices continued to rise amid a very active public market mergers and acquisitions period. While we were unsuccessful in finding investment opportunities that year, it did lead us to spend a significant portion of our time in a variety of drive-to leisure markets. We found that these markets had little to no supply growth and demand had consistently grown over long periods of time and outperformed during economic downturns. We began to see a number of opportunities in those markets in 2019 and ultimately added assets in the Florida Keys, Myrtle Beach, S.C., Maine and Delaware.
It felt like we were beginning to find a rhythm until the pandemic hit. We had closed on three investments in February 2020, and then only a few weeks later, I was leaving New York City with my wife in a car. I spent the better part of 48 hours from New York to Florida projecting cash flow burn across our portfolio. By the end of the weekend, it became clear that the most draconian scenarios were probably the most realistic.
Somewhere between June and August 2020, it felt safer to say that we were going to make it to the other side. We were beginning to see strong signs of an early recovery at our drive–to leisure assets. Those early grass shoots paired with the long-term fundamentals we were excited about going into COVID–19 led us to focus on those opportunities over the past 24 months. Ultimately, that led us from four hotels at the end of 2019 to about 40 hotels today, of which, 37 are drive–to leisure resorts on the East Coast.
What has helped you guys grow so quickly?
A great team across EOS as an organization, but philosophically, I’d say focusing on decisiveness and discipline in our investment approach. We didn’t have the time to focus on every possible opportunity in our early years, which instilled a number of good habits around prioritization. Staying disciplined and exploring a variety of markets and unique opportunities in 2018 and 2019 was invaluable to shaping our investment focus and gaining conviction around markets over the past couple years.
You follow the capital markets very closely. Balance sheet lenders and the securitized market have dried up immensely and the summertime is always slow. Can you tell us more about what is causing some of this, what you’re seeing lately and how quickly things have changed over the past month or two? What do you think your focus will be by the time we get to fall?
You should save the first part for Chris Smith in your Week 3 Q&A! I won’t be able to do it justice to the same degree.
Regarding this fall, we are still excited to pursue similar opportunities to where we have been focused as of late, but the major change from six months ago is that we are expecting an uptick in transactions over the coming months as a result of challenging capital markets conditions paired with potential valuation liquidity gaps around assets and loans that have been extended over the past 24–30 months as a result of COVID–19. In all cases, we focus on transactions where we can create positive outcomes for the parties involved. We find those deals tend to have the highest likelihood of moving forward and offer the greatest alignment.
Should we put Chris’ name in this interview and put him on the spot?
Yes, let’s do it.
You acquired the only Forbes Five Star hotel and restaurant in Cape Cod with the Wequassett Resort and Golf Club back in the spring. Can you tell us about that property and what your plans are for it?
We had been aware of this asset for a long time and were excited to have discussions with ownership at the end of 2021. The prior ownership created a unique brand and special experience at Wequassett over a +/– 40-year period. We are excited to be the next steward of the resort, with plans to undertake a series of renovations that continue the history and character of the resort. We are very focused on retaining the ethos and uniqueness of Wequassett as we add it to over the coming years. It is one of our highest quality assets and an incredibly special experience for a guest.
I don’t believe you have done any ground up development and you haven’t purchased anything in the Mountain West. Any desire to do either in 2023 or beyond?
We have the ability to undertake development, but we tend to be very selective as to where we will apply it. We generally focus on existing assets with in–place cash flow that we can supplement with a number of value–add components, including expansions via ground-up development.
We would love to purchase more on the West Coast and Mountain West. Geographically speaking, the East Coast has significantly more developed leisure destinations than other areas of the country, so there are more markets and assets to evaluate there. The Mountain West in particular has less developable terrain and fewer population/infrastructure centers, so it is a smaller opportunity set as a region from that perspective.
How much easier is it to operate hotels in the Florida Keys versus Cape Cod or Maine? Do you move your employees around based on the time of the year?
It’s difficult to operate assets everywhere right now, but the destination resort markets have their unique challenges. The Florida Keys are a relatively non–seasonal market (from an occupancy perspective), so you don’t have severe changes in operational intensity around seasonal openings or closings that you will find at some assets in northern locations such as Cape Cod or Maine. We share resources across our portfolio to the extent we can, including personnel who are excited to move locations depending on the time of year. Ironically, one of our team members moved to Florida during the winter high season and decided to stay permanently after spending a few weeks there. Said better, our team is constantly exploring and evaluating changes to operate in the current environment. We are large believers that seasonal markets will experience extended seasons going forward (as they have already demonstrated in many cases). A prolonged season should have intangible benefits around improved employee retention and attraction that historically had been more challenging in short-season markets.
People love to talk about barriers to entry in real estate. What is a sneakily lower barrier to entry market than some might not expect?
Charleston, S.C. It is a smaller, highly dense peninsula, so at first glance, I would have expected close to zero supply growth. That is not the case, but the demand picture is tremendous as a leisure market and it was a top RevPAR growth performer in the early 2010s and over the past 24 months. We’ve continued to evaluate opportunities in Charleston, and there are a number of unique properties on the peninsula that have traded recently, including one of the most iconic assets in the country, The Charleston Place. It is a fortress piece of real estate.
One topic that seems to have dominated the news is remote/flexible work. A lot of your assets are in drive-to locations. 2019 hotel revenue numbers were blown out of the water in 2021 and into 2022 in most drive-to leisure destinations. If we avoid a recession, do you see even more upside and demand with significant revenue growth going out the next few years because of the way Americans work?
We think remote/flexible work is here to stay. We think this will extend seasons and create more business specifically on Thursdays and Sundays (as is already showing up in the data). Regardless of what happens in the very near term, we think the long-term trendlines are strongly positive.
Favorite hotel you discovered during travel recovery post-COVID?
An amazing hotel my wife and I discovered over the last couple years: Kamalame Cay. It is a family owned and operated set of bungalows and cottages on a small island in the Bahamas. It was incredibly atmospheric, relaxing and fun.
Favorite place to go within your portfolio?
Maine is idyllic in the summer. A close second for me would be fishing in the Florida Keys.
One of your favorite restaurants in New York City?
St. Anselm in Williamsburg, Brooklyn. Specifically, the tomahawk ribeye for two. It has been amazing for many years.
Most interesting new restaurant you’ve tried in the past six months?
Falansai in Bushwick, Brooklyn. Vietnamese with some French twists. It is impossible to stay on top of the best/new restaurants in New York, though.
Tell us about Rosella in New York.
Rosella serves sustainable sushi (among many other dishes) using domestically sourced seafood and other ingredients. It was recently voted one of the 25 best new restaurants in the country by Esquire. We are excited to partner with them on a second location at one of our Maine properties (ahead of next summer.)
Finally, what would you want to be doing if you weren’t in the hotel business?
On a more light-hearted note, I’d have to say: Hot dog stand owner/operator. Seems to work everywhere I go: corners of the city, college football Saturdays at Notre Dame, etc.
This interview has been edited for conciseness.
Read more from SmartBrief:
- Part 1: How to serve today’s digital nomad and bleisure travelers
- Part 2: How to serve conference and expo business travelers
- Part 3: How to serve client, supplier and stakeholder business travelers
- Report: Travel industry challenges ahead
- Study predicts rebound of business travel in 2023
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