Latest / The Modern Hotelier / #342: Hotel Financing: Rates, Deal Killers, & Flags vs. Independents | with Ryan Bosch
Transcript
- The Modern Hotelier #342: Hotel Financing in 2026: Why Waiting for Lower Rates Could Cost You Millions | with Ryan Bosch === David Millili: Welcome to The Modern Hotelier, the most engaged podcast in hospitality. Don't forget to follow, like, subscribe, and let us know in the comments what you think about today's episode. Steve, who do we have on the program? Steve Carran: Yeah, David, we got a good one today. We're joined by Ryan Bosch, the principal at Arriba Capital. Thanks for joining us, Ryan. How you doing today? Ryan Bosch: I'm doing well. Thanks for having me, guys. It's a Friday, so happy to be here. David Millili: Let's go. All right, so we're gonna dive in. We're gonna go through a lightning round with some quick questions. We're gonna learn about your personal background, your career, and then dive into some industry and thought leadership topics. Sound good? Ryan Bosch: Perfect. David Millili: All right. So when you were little, what did you want to be when you grew up? Ryan Bosch: Oof. What did I want to be when I grew up? When I was little, shockingly a lawyer. And then by the time I got in high school, I'd realized that was a terrible idea for me. David Millili: What's something that you wish you were better at? Ryan Bosch: Having patience. David Millili: Okay. What's a luxury you can't live without? Ryan Bosch: Unfortunately, as much as I hate to admit it, my iPhone. David Millili: Okay. So tell us a person dead or alive that you'd like to take to lunch. Ryan Bosch: Ooh, that is a tough one. For me, it'd probably be a grandfather that I was never able to meet. David Millili: Got it. That's good. Give us something that's on your bucket list. Ryan Bosch: Ooh, bucket list. I've got a three and five-year-old, and we have big plans for summer travel as going on airplanes gets a little bit easier. So I think we're trying to do a safari that's been on our bucket list in the next couple years. David Millili: Wow, that sounds cool. Steve Carran: That sounds great. I'm about to take my sixth month on a flight, so pray for me on that one. So that was great, Ryan. Now we're gonna dive into your personal background, a little bit more about you and what makes you tick. So you grew up in the Phoenix area. Is that correct? Ryan Bosch: That is, yeah. Steve Carran: I gotta ask, where'd you live before Phoenix? Ryan Bosch: Queens, New York. Steve Carran: No kidding. Ryan Bosch: Yeah, so. Steve Carran: You're born in Queens, moved to Phoenix, grew up there. How did that really shape you into who you are today? Ryan Bosch: Quite a bit. I'd say, come from a blue-collar family in Queens. Mother's from Brooklyn. Moved out to Scottsdale, which was a massive change of pace as you could imagine, much slower on the West Coast than it is back home. And Phoenix has been great. I'll tell you, I'm never planning on going back to New York to live. David Millili: So tell us how you really got started in your career. Ryan Bosch: Yeah. So, untraditional path, right? Interesting story. I was what you'd probably describe as a troubled youth. Got a lot of trouble, middle school, high school. Kicked out of high school, shipped off to a military school, kicked out of a military school. And in that timeframe, one of the passions that I had was playing paintball, if you've ever heard of it. And became-- I got so into it, I started playing professionally. We were traveling to tournaments all over the country. When I was 17, we had some ideas for products, figured out how to get them made, borrowed some money from family, friends, and we started this small kind of mom and shop company that was making soft good products for paintball. That blew up, and by the time a year later I was 17, we were doing $5 million in revenue. I had 20 people working for me, and we had distribution all over the world. So that was my college experience. We grew that into a pretty large company. We had offices in Hong Kong, Frankfurt, Germany, sponsored over 100 teams around the world, and that was my passion forever. We sold that right before the GFC. They did a private equity roll-up in the business, so they bought the biggest gun company, the biggest paint company, and then my company was the largest soft goods company. Steve Carran: Wow. That is awesome. What is it like playing professional paintball? I gotta ask. Ryan Bosch: It is one of the most fun and rewarding experiences ever that you make absolutely no money doing. Steve Carran: Do you still play today? Ryan Bosch: Yeah, we, I play, I'd say like once or twice a year they have like kind of the old guy, like retired pro tournament, like the beer league tournaments where we'll get together in one or two places around the country. Steve Carran: Very cool. Very cool. So one thing that you're also passionate about is you do a lot of volunteer work that assists families from the war in Afghanistan. How did you become involved in this? Ryan Bosch: Yeah. So through our local church, my wife's pretty involved down there. When the Taliban-- then when we exited Afghanistan, Taliban really came in and took power, you had a lot of displacement, right? So you had people working for the existing government that the US had propped up. And without getting in too much of the details, you had a lot of them stuck in these horrific situations where they had no access to get back into their country, looking for exit pass with no passports. So we got pretty involved in that, in helping families resettle. A lot of those families actually resettled in Phoenix. You know, so we would be there picking them up from the airport when the family landed, getting them resources to get housing at first, vehicles, jobs, all that type of stuff. Steve Carran: Very cool. Very cool. So now we're gonna dive into your career, how you got to Ariba Capital. So you had the paintball company, sold that, and then you went to Grand Dynasty and were a VP there. Also that's consumer goods manufacturing, correct? Ryan Bosch: Yeah, so that was consumer goods manufacturing. I was a partner there. Family business that started off small and we kind of grew it over the years. You know, in paintball we did a lot of manufacturing in China. So I lived in Hong Kong off and on for about a decade. And we did a lot of sourcing, manufacturing all throughout Southeast Asia. And with that we got into doing private label manufacturing for other companies. So when Samsung Galaxy phone came out, if you bought a charger or case for it, there was a good chance I was the guy who made it. You know, my family still makes accessories and cases for Taser, like the personal protection devices that the cops use. So all different types of manufacturing. We did an offshoot where we were one of the larger suppliers for RadioShack, and at this point I was in my mid to late 20s. RadioShack bankrupted and at 27 or 28 I was in the top five unsecured creditors of RadioShack. So that was a fun process to deal with at a very young age. Met my now wife at the time, we were dating, dead broke for the first time in my life, and I was about to take my first job. I had never worked for anybody. And big company was headhunting me out of Atlanta. We were about to pack up and move. Just did not wanna move to Atlanta at the time and leave Scottsdale. And I had a quick lunch with an old friend and they were-- they had just started at Reba Capital. It was a two-man shop at the time. They were generalists doing lending and capital markets advisory, very small volume, and kind of walked me through the business and I found it fascinating. And said: You know what? Let me give this a shot. I'll give it 12 months and see how it goes. And here we are 10 years later. Steve Carran: I gotta ask, what did you take from the consumer good manufacturing side that you take with you at Arriba? Ryan Bosch: I mean, look, lots of stuff. I'd say I got very good at P&L management and understanding how financials work through that process. You know, the other side of it, and I think what I learned quickly at a young age was that business was so much of a relationship business. You know, you had to have the core skills, but I thought the separator was really the relationship side, and that's what I've found to be true in just about every industry, especially in what we do now in capital markets work. David Millili: And for those who are not familiar with Arriba Capital, can you tell us more about what you guys do? Ryan Bosch: Yeah. So we do capital markets advisory. I mean, we're the guys that go find the money for hotel projects specifically. All we do is hotels, primarily in debt, but we also work on equity raises, whether that's joint venture equity or structured financing like mezzanine debt, preferred equity investments, et cetera. Steve Carran: Very cool. Very cool. So now we're gonna dive into the industry thought section, more of the thought leadership section of the podcast. I'm excited about this 'cause we haven't had too many folks on from your side of the business. So the Feds hiked last week, and the 10-year crossed 5%. Owners have been sitting on refinancing since around 2024, and they're in worse shape now than when they started. Is waiting for rates to come down a bad strategy, or what advice do you have there? Ryan Bosch: Well, I think this year we've learned that waiting for rates to come down is a bad strategy, right? You never know what's gonna happen. I mean, the first thing I always tell everybody on that, no one has a crystal ball. But you kinda have to just play the cards that are dealt on the table at the time. I mean, that's the advice I give people is, don't spend too much time thinking about what's gonna happen five years from now 'cause odds are your predictions are gonna end up being wrong. Play the hand you're dealt today and go off of that assumption. So, where we're at today is a tough pill to swallow, right, with treasuries being over 5%. You've got a lot of people that were waiting and anticipating things to go the other direction that are now in very tough decisions where they're looking at, "Can we refinance? Do we have to put cash into the deal to do that? Is now a time to sell the asset, given what refinancing prospects look like?" So yeah, it's been a very interesting couple months in the capital markets for sure. David Millili: And so your operating statement gets rebuilt before anyone quotes you, and a few lines nobody thinks about are setting your loan proceeds. So can you tell us more about how a lender actually reads your P&L? Ryan Bosch: If you're a hotel owner/operator, right, and you're going for lending, you're looking at your net operating income that comes off of your P&L and assuming that's how a lender's gonna underwrite it. Not necessarily the case. They're gonna normalize some things. So what does that mean? They're gonna probably pull out your management fees, or if you're an owner/operator, they're gonna add in a management fee of 3%. If you're not carrying reserves for FF&E and CapEx, they're probably gonna put in a calculation for 4% there. They're gonna normalize property taxes. They're gonna go off of what your forward-looking insurance bill is versus what it shows on the statement. There's a lot of massaging on those numbers that happen that, what they calculate your cash flow is versus what your actual cash flow is, there's typically a delta there. Steve Carran: Good to know. So one of the big decisions that you have to make when you're opening a hotel is if you're gonna be a flag or an independent. And that decision doesn't only come down to distribution, it comes down to financing as well. Is the flag always the best option on the financing side? Ryan Bosch: No, not always. It always depends on the asset and the location, but I'd say there's kinda pros and cons on both, right? If you're looking at it from just a financial perspective. On the lending, the capital market side, there's gonna be a lot more appetite for branded product than there is for independent, right? And it's just because there's more data out there on the branded product. We could go look at a Home2 Suites or a SpringHill Suites, and we have a good idea of how those are performing across the country and how those are performing in different types of markets with different types of demand generators. Independent, right, you have no idea how that's gonna perform until it's in the market and performing. Yeah, the flip side of that is you've got markets that have such sticky and built-in demand generators. Like a good example of that would be Napa wine market, right, in Northern California. That's a market you see a lot of independent versus branded product, and it's because they don't necessarily rely on the distribution from the brands as much in places like that. And the pro on the independent side there is you look at most franchise or branded deals, call it 12% to 14% of your revenue is going to the brand. Plus you've got fixed PIP schedules, CapEx schedules that happen and on the unbranded side, you get that margin back and a lot more flexibility with how you invest in your asset. David Millili: And so office-to-hotel conversions are becoming more common. So why are these conversions becoming such an important source for the new hotel supply? Ryan Bosch: Yeah, I think, you know, first thing there you have to look at is why are people doing that, right? We've got office values depressed. And then on the flip side, it's probably the most expensive time there ever has been to build a hotel ground up with both cost of construction as well as interest rates. So the deals that we are seeing happen, there's usually some creativity, right? So office-to-hotel has been extremely popular. We've probably underwritten 40 of them. We're financing three of them right now. You know, and it's tough. Not every office building is a good candidate for a conversion to a hotel. How the elevators are, how the mechanical electrical systems are in the product, the floor plates, all that come into factor on making it a viable deal or not. But, you know, a good example we saw recently, without giving details on a specific deal, you had an office tower trading in a top-five city that an insurance company had a basis of 300 million. They bought it in 2017. We know a developer that just bought that asset for $25 million today for a conversion to a hotel, and that was a Class A, luxury office product. So, you know, there are interesting dynamics. Every city's different. There's a lot of Class A office vacancy that's going for pennies on the dollar. And I think there's gonna be some great hotels that come out of that, especially in urban core markets. Steve Carran: So I'm just curious, like, what kills a deal most of the time? Is it the rate or is it something else? Ryan Bosch: Oh, man. There, there's all sorts of things that can derail a deal, getting it to the finish line. I think the biggest thing is having your assumptions wrong, right? Where you're chasing too much leverage, you're got unrealistic projections on your pro forma that hasn't really been pressure tested on the back end. Maybe you're not well-capitalized enough for the deal. But I'd say there's, you know, getting the deal aligned and signed up where a bank puts out a term sheet on a deal, and then getting it across the finish line are two different things. And from what we're seeing, the guys who come in that have, I don't wanna say realistic expectations, but more well-thought-out business plans, even on some of these smaller projects, that's the biggest thing, is understanding the boxes that you have to check out of the gate and having some room for error in your pro forma. David Millili: And so what advice would you give to the younger generation that wants to get into the finance side of hospitality? Ryan Bosch: I'd say, look, the big thing is you've gotta love it. You gotta love diving into the numbers, right? I think earlier you guys said you haven't had a lot of finance people on the podcast. It's not the most enjoyable conversations, right? To dive into the numbers and nitty-gritty of hotels, but it's a lot of fun, right? You get to be part of amazing projects and have an instrumental role of bringing them to life. But I'd say the biggest thing is really diving into the numbers and making sure you love that, 'cause that's what you're gonna be living and breathing. You gotta be someone who wants to understand the why of what causes everything on these hotels. David Millili: That's great. I have a quick follow-up I should have asked you earlier, but what's the hottest market right now in the US for hotels? Ryan Bosch: You know, I think we're still seeing the most activity in Sunbelt markets, right? There's pockets of Texas that are still extremely active. We've got a huge book of business down in Houston. Dallas still has the biggest construction supply pipeline in the country. We're seeing probably more acquisition activity in Florida than anywhere else. That market's still doing very well, different pockets of it. Yeah, but I'd say the beauty of the hotel business, right? It is a micro business. So yeah, you could go into a hot market that's oversupplied and there's too many people chasing, and then there's these tertiary markets where you have a much shallower buyer pool, and I think those are where some of the best deals are happening right now. Steve Carran: If somebody's interested in opening a hotel or building a hotel, are there any things that they should have lined up or prepared or ready to go before they even kinda start the process? Ryan Bosch: I'd say the two biggest things, like when you think about going out for financing on a hotel, I always hear everyone's very focused on raising the equity, and that's equally, if not more important. But I think what people forget sometimes is, you go buy a hotel for $10 million, your biggest financial partner on that is the lender, right? They're putting the most dollars into the deal. They're probably putting six to $7 million of that capital into the deal. So making sure your strategy considers that on the front end, of underwriting it to the right leverage of what the market's gonna be, making sure you've got someone on the team that has real hotel chops. You know, buying your first hotel and financing your first hotel with absolutely no experience, very difficult thing to do. So, you know, usually we're seeing people partner with someone that brings that experience to the first deal. They kinda learn the ropes and maybe do the next two or three on their own. The other piece of it is having the financial capacity to do it. Hotels are a volatile business, as everyone in our business knows, and because of that, you gotta have a strong balance sheet, and that's what lenders are gonna be looking for. That's what equity investors are gonna be looking for. They wanna make sure you got the wherewithal to ride it out. Steve Carran: Good to know. Good to know. Since you have so much experience on this side, I expect to see an Orion Hotel coming up in Phoenix over the next few years. Ryan Bosch: Not happening, not happening anytime soon. Yeah. Steve Carran: Well, that sounds good. So, Ryan, this has been a great conversation. This whole time we've been asking you the questions. This is where we turn the tables and let you ask David and I a question. Ryan Bosch: Ooh. Let's see here. I think number one question would be, on the financing side, what's something that you guys wish you understood more? Steve Carran: All of it. David Millili: Yeah, I would probably be in the same boat with Steve. What I know is what, being the older guy, what I saw happen in New York City was really interesting as New York City kind of exploded with hotels. When I first moved to New York in the early '90s, there was a lot of independent hotels and there was maybe two or three Marriotts, two Hiltons, and all the parking lots just became these Marriott Courtyards or Holiday Inn Expresses. And so a lot of what I, when I talked to people back then, it was really this idea, going back to the other question, is that a lot of them couldn't get the money unless they branded or flagged the property. It was very difficult to open an independent hotel in New York City, and what you saw was the people that already had the big, already had those independent hotels were the ones that were just getting more independent hotels. And that's just New York, so that's just my experience. But yeah, I think I'm with Steve. I've got some good friends who are CFOs and that's kind of just like a foreign language to me. Ryan Bosch: Yeah. And then I guess my follow-up question for you guys, since you're touching more pieces of the hospitality industry than I probably am, what do you think the most exciting trends are coming up over the next 12 months? What are the things that you're watching, the topics that you're watching the most closely? Steve Carran: That's a good question. I'm really excited to see the variety of hotels that are popping up. It's not just when people are starting hotels, it's not just like the traditional, "Oh, we're gonna go to a city. We're gonna open up a 10-room hotel or 50-room hotel," whatever it is, and have that traditional hotel sense. People are starting campsites. They're starting tree fort hotels. They're starting all these different things that focus more on the experience side. But not only that, it's what their passions are. And I think the people who are passionate about outdoors shouldn't open a hotel in Chicago, right? They should open up something that's a little bit outside the box, in nature or something like that. So I think people are opening properties based on... Well, some of them are based on their passions and what they enjoy doing, which I think is really cool 'cause we're seeing so much variety in hotels now. So whether you're passionate about outdoors or glamping or whatever it may be, you can probably find a hotel that shapes that experience. David Millili: Yeah, another thing I'll add, which is I think interesting, is we always get disappointed when we see an independent group get acquired by a brand. But what I've been seeing, or I think what the industry has picked up on, is that now these brands that are acquiring independent brands are almost letting them stay on their own and not really... You go into something like an Autograph Collection Hotel Marriott, where it used to feel like everything was Marriott. Now it's like you have to look. Maybe it's the laundry bag in the closet that has Marriott on it, but there might be a little Bonvoy plaque somewhere, but they're not putting it in your face that it is a Marriott because they've picked up that people sometimes like the points and like being able to find them, but they don't really want to be at a cookie-cutter type of branded property. Steve Carran: David, I'm proud of us. We didn't say anything about AI in our answer. David Millili: You just blew it. Ryan Bosch: I was very happy to hear that. Yeah. David Millili: We almost made it the whole podcast without talking about AI, but you— Steve Carran: I know. Pretty impressive. Pretty impressive. Well, Ryan, this has been great. Our producer, Jon, he's been listening this whole time. We're gonna kick it over to him for the final question before we get you outta here. Ryan Bosch: Perfect. Jon Bumhoffer: Also, this is a fun one 'cause we don't dive super deep on this super often, so it's cool to hear this side of the story. I'm curious, and I don't know if this happens at all, but do you feel like you have or you see where things are going or where trends are heading in the hotel industry just because you have a lot of people coming to you for certain types of projects? "Hey, we wanna invest here in this type of property versus that"? Ryan Bosch: Absolutely. I mean, I think that's probably the biggest benefit of being in a seat like ours, right? We're underwriting and looking at financial performance of so many hotels on a weekly basis. I mean, we probably do a deep dive as a company on 40 to 60 hotels a month in different markets across the country looking at their financial performance. So we do see those trends a lot of times before others, right? Of expense creep, insurance costs going up. We track all of that internally. We also see where hotels are outperforming in certain markets, right? And there's a clear demand imbalance, and we'll see that across the aggregate, right, of six or seven hotels in a market that we see. So yeah, that is fun and that's something we talk about nonstop with our clients. I'd say, you know, what we get paid for is going out and finding the capital, but probably the more fun part for me is on the advisory side in the early innings, right? Where we're helping our clients with their business plan and really proofing the numbers and researching the data behind that. That's the fun nerdy part about what we do. Jon Bumhoffer: Kind of a follow-up on that, is there any trends or things you're seeing that are really outperforming that have stood out to you recently, and maybe things that are underperforming? Ryan Bosch: Yeah, I mean, look, I think on the underperforming part, everyone's, in most markets, are struggling on RevPAR growth, right? Growth's pretty flat. Expense creep's going up. I know that's a topic that's been talked to death, but we haven't seen any dislodgement there. Like, we see that trend just continuing right now. And I think the bigger plus side that we're seeing is the transaction market's been tough, right? Even though we're seeing some big marquee deals happen, especially on the luxury side right now, and transactions are happening, but it's very muted from what it's been historically. We're starting to see, at least in my view, the early innings of trades happening, right? Where more forced situations, I don't even wanna say distressed, but deals that were bought for too expensive, the capital stack's not working, they're forced into a PIP or a refinance and they decide, "Hey, this is it. This is the end of the road for us. We're gonna put the asset for sale." We're seeing some of the best buys we've seen in the last decade on deals like that, and it's becoming... The frequency's increasing every month, it seems like, on that trend. So I actually think it's a great time to be a buyer if you could find and access those types of transactions right now. David Millili: Well, that does it for another episode of The Modern Hotelier. Ryan, this is where you get to let people know how they can find out more about Arriba Capital and how they can get in touch with you. Ryan Bosch: Absolutely. Find us at arribacapital.com. My email address, if you ever wanna reach out, very simple, ryan@arribacapital.com. And we'll be at Lodging Conference in a couple weeks, so I hope to see a lot of you there. David Millili: All right, great. Well, that does it for another episode of The Modern Hotelier, the most engaged podcast in hospitality. Whether you're watching or listening, we appreciate you and hope to be with you again soon. Thanks for joining us, Ryan. Ryan Bosch: Oh, thanks so much, guys.