DoveHill Capital Management

Jake Wurzak is the Founder and CEO of DoveHill Capital Management, a hospitality investment firm with more than $1.5 billion in assets under management. He is also the CEO of Wurzak Hotel Group, a vertically integrated hotel operator with a focus on premium branded full-service, select service, and extended stay hotels.

In this story, we will review Jake’s journey to his role today, the case for investing in hospitality, and the lessons he has learned along the way.

Jake's journey to hospitality investing

Jake grew up in Philadelphia and was immersed in the world of hospitality from a young age.

“Hospitality was the business my dad grew up in and has always been incredibly passionate about. He worked his way up from nothing to developing and owning a portfolio of hotels. Watching him made me realize hospitality was also a passion I had and wanted to pursue.”

Growing up in the family business also meant Jake’s career in hospitality started early. “I was an underage bar back, which was probably illegal at the time, but it was fun!” he recalled with a laugh. Summers were spent rotating between different areas of the hotel operation: covering everything from housekeeping to engineering. “This definitely made me aware of all the things that go into hospitality and became the foundation for good leadership skills.”

While studying at the University of Miami and then law school after that, Jake continued to spend his summers either working at one of his family’s hotels or at internships with Kor Group and Hersha Hospitality Trust. “I learned a lot through these experiences and they really helped shape my investment philosophy.”

What Jake learned growing up in the business

“In our company, we always see the best leaders on the operating side are those that have come up in the hotel business and essentially done every job,” Jake said. “As an investor today, my early career experiences give me a competitive advantage when developing a business plan because I can understand from a deep, practical level what's possible, what we want to focus on, and where the challenges could be.”

These experiences also gave Jake empathy for the work on the front lines of hospitality. “It's really hard work doing what people do in hotels at an hourly level and it's the most important work in a hotel. I grew up in a privileged environment and having the opportunity to work in those jobs was important and formative.”

The case for investing in hospitality

“Hospitality is the hardest real estate asset class,” Jake told me. “You have to love it. I love it. I love creating experiences for people. I love designing things.”

“Hospitality investing gives you the opportunity to see how people are using the spaces and the rooms you design and the experiences that you create. It's exciting. What I’m doing now blends my passion for experience and design and creativity with real estate because hotels are operating businesses.”

“Hospitality is both a real estate investment and an operating business investment that creates the ability to earn higher yields. But it's very hard - and people that say it's not have a lot to learn. If it was easy, everyone would do it because it is so gratifying.”

“In hospitality, the competitor pool is smaller. The competitor pool in the type of hotels that we invest in is even smaller. Because of this, I think there's a unique advantage as opposed to other types of real estate investment.”

“Oftentimes when we do a hospitality deal, it's only because we have a deep track record in hospitality. It's not something that you can just dip into and be able to raise equity and get financing. You have to have a track record that you've built over time in order to be in the game. The barriers to entry to just get in the game are harder.”

“Hospitality as an asset class is smaller than industrial or multifamily real estate, but the yields are great. If you really know what you're doing, you can create great value in hospitality real estate, but you can also create tremendous value in the operating business, which eventually falls to the bottom line for all of your investors.”

DoveHill’s hospitality investment strategy

“DoveHill Capital Management was formed in 2011 and we seek primarily full-service, boutique, and lifestyle investments. We raise money from institutional partners and high-net-worth LPs in high-barrier-to-entry markets where we can really differentiate ourselves. We don't focus on commodity hotels.”

The company looks for investment opportunities to leverage its expertise and create value.

“We're typically not a core investor, buying hotels like a REIT and then just holding them. We want to get into something where we can really add value and pull multiple levers.”

This is where hospitality investing is unique. “Investors appreciate all the ways we can create income streams and value in hospitality investments. A lot of my friends who invest in multi-family apartment projects can only renovate the kitchen, renovate the bathroom, put paint on the wall, and then maybe manage it slightly better. In hospitality, we can do so many other things to drive revenue and to create value.”

“Part of the reason why we like full-service hotels is we can do even more value creation activities and pull even more levers. Limited-service hotels are very similar to multi-family where you're really just selling rooms. In our view, it's a competitive advantage for DoveHill to focus on full-service hotels.”

Jake’s development experience is key here. “We have developed 10 from the ground up now - and have done even more extensive renovations. That's a secret sauce of our investment approach as well.”

An integrated approach to hospitality investment

In addition to being CEO of DoveHill Capital, Jake is also the CEO of Wurzak Hotel Group, which operates most of the hotels that DoveHill invests in. He sees this relationship as another of his competitive advantages.

“Vertical integration is one of our key differentiators and something that we're really proud about. We've gotten offers to sell our management company multiple times, but it's way more valuable to me being vertically integrated with our investment platform than it probably is to someone else.”

“Owning our management company gives us the ability to control our destiny and execute how we want to execute. We don't have to rely on anyone. When we're raising outside capital, it’s a unique thing. People understand we know how to run a hotel. They're not just coming up with a pro forma based on what it said in the Cornell handbook. We have done it and have a track record of performance.”

Examples of the benefits of vertical integration

“The Dalmar is a great example of the benefits of being vertically integrated because we created a brand in Fort Lauderdale from scratch. We were the first boutique lifestyle hotel in downtown Fort Lauderdale and we executed all of the food and beverage experiences in-house through our culinary and beverage team. We opened that hotel in 2019 and people are still getting excited about it. Classic, good design will last.”

The 1 Hotel in West Hollywood is another example of the benefits of vertical integration. “We were brought into that project by Barry Sternlicht at Starwood Capital Group to come in and work with him to redevelop and create The 1 from what was a pretty generic 4-star hotel. Our experience operating hotels and creating inspired spaces gave us the ability to not only do it cost-effectively and get the most bang for the buck but to think ahead to how the hotel would eventually be operated. No one does hospitality better than Barry and it is always a humbling experience to share the court with him”.

“We aren't just some hired designer that doesn't have any operational experience. We have perspective. Before the operator gets involved, we're already pointing the ship in the right direction. That’s value we can bring even if we're just working on a project as the developer.”

Lessons learned through Covid

“Before Covid, everything was great. Cash on cash returns were great. We were selling assets for big numbers. You feel like a genius. And then Covid happened and hotel investors were worried they wouldn’t be able to make distributions or might lose their investments.”

“DoveHill didn’t lose any investments during Covid. We shifted our mentality to the preservation of capital when previously it was all about distributions and generating great returns - that saved us. What I've learned is it's best to be honest with your partners and let your true strength as a leader shine through. Because even if you make a bad decision, even if you make a bad call, people will respect you for living up to that mistake and owning it. If they don't, they don't have to be your investor anymore. Maybe they weren't the right fit.”

“If there's a macro decision, people get to see how you rise to the occasion or you don't. Having the ability to prove yourself to an investor is something that I like. It's really hard because investors are hard on you. We have some investors that are tough and rightfully so. They've made a lot of money in their career, they know how to make money, and they're smart business people. I find that I try and take a little bit of what we learned through each deal and carry that through. At the end of the day, being a GP is about making decisions and having conviction.”

The importance of team building

Jake spent a lot of time through Covid planning how DoveHill would emerge from lockdowns stronger and better.

“A key element of that was our people. If you compare the DoveHill team pre-Covid to post-Covid, it is so much stronger, so much smarter, and so much more intense now. That's what I love: Passion, drive, not being afraid to ask a question, admit when wrong, and of course, a spirited debate.”

“Expressing opinions in our business is really important. I don't want to feel like the smartest person in the room. I want my team to know way more about whatever it is they're focused on than me. I'm just here to maybe tweak it or guide them in a direction. I want my team to shine.”

“One of our competitive strengths and our core values is entrepreneurialism. We try and run a lean team to enable that. It gives people the ability to learn new skills and to focus on new projects.”

“If you have people siloed, they're only going to know what's in that department. Having them work on everything makes for a more well-rounded team so that if someone leaves or if someone's out for a little bit, everyone can pitch in and cover what needs to be done. And it also just makes it more fun, and less political.”

“We spent a lot of time during Covid and post-Covid focusing on culture and team building. We've brought in coaches, had seminars, and gone on retreats. Culture is really important because when times get tough, you need your team. It's not just about you, it's about the team. I'm grateful for the team that I have today and I'm hoping the team that we have keeps evolving into this amazing machine as we add new folks.”

Emerging stronger through the pandemic

“The hospitality industry took a gut punch during the pandemic and I lot thought a lot about what the difference would be between us being wiped out and emerging from bigger than how we went into it. Which path we went down was really up to the decisions we made. A big downturn will do that. If you haven't been through a downturn or a recession, you don't know that.”

“I think most people have this bias where they think they're going to be the one that's going to thrive during the recession or the downturn. I'm nervous about downturns but I also know we’re going to be fine because we have a strategy to get through to the other side.”

“I invested in a close network of really tight friends in the industry that I talk to on a weekly basis. I would encourage anyone to get a little group together of five or six people that are in your industry. Sure, there might be some competitive stuff that maybe you can't talk about, but the value of a group like that is going to be incredible. For me, it has been life-changing.”

Jake said another thing that's really important to keep in mind during downturns is understanding cash flow. “Cashflow can disappear overnight. In the hotel world, it did disappear overnight and we had to be able to raise capital. Raising capital is hard. No one likes a capital call, but they also don't wanna lose their asset.”

“Structuring the capital raises is something that people should think through. If you don't have a stated capital call plan, you should probably think about what you're going to do in the event you have to raise capital. You don't want to be in a situation where you're just desperate and you have to take a deal that you might regret later.”

Another lesson Jake learned going through the pandemic was if you take the steps mentioned here you're probably going to make it through - and you need to be ready to capitalize on opportunities as they come.

“Once you've stabilized your portfolio, stabilized your balance sheet, and you have the core team who can get you through to the other side then it’s time to start thinking about what’s next. What is going to look different? Can we use our relationships with all these people that we've cultivated over our history to help them? Can we buy something from them?”

Jake and his team made nine tactical, preferred equity investments during Covid following this playbook. “This was something we never had done before. Frankly, we never considered investing in a hotel that we didn't manage. But in all those preferred equity deals, we didn't manage any of them. We were betting on a great manager, and giving them some capital that they needed to get through to the other side, coming up with a creative way to structure it, being flexible, wanting to get a deal done, hoping they succeed because then we would almost definitely succeed as well.”

The importance of clarity of focus - and communication

“I’ve found clarity on your investment thesis and your business plan is very important. Simplifying the message and learning how to write and convey that to investors is essential to raising capital.”

“No high-net-worth person I’ve worked with wants to read a 60-page investment memo. If you're an institution they have SEC requirements and they have an investment committee - that's a different story. Writing the right investment memos for the right audience is a skill that I think is underrated and needs to be focused on.”

What helps with clarity? Getting early feedback from a couple of key investors and advisors, Jake says.

“One thing that we did during Covid is form an investment committee with outside advisors and investors on that committee. I’m also constantly asking trusted friends in the business, ‘What do you think about this?’ That’s been really key for me. The hotel business is very small. Real estate investing is a small world as well. Relationships are important.”

“I operate very transparently. Maybe that hurts me every once in a while, but I feel like if you put some positivity out there when you need someone, maybe they'll give you a little nugget or some feedback about what they did when they were dealing with the situation like that. That's been really valuable for me.”

Building stronger investor relationships

Building strong investor relationships has been a focus for Jake since forming DoveHill, and he’s doubling down on new ways to do this now.

“We switched to Juniper Square to enable us to continue to delight our investors. We've found is investors really value easy access to information, seeing it presented beautifully, and getting updates and their K-1s in a timely fashion. With Juniper Square, all their information can be found in one place. The less time an investor has to spend emailing someone for information, the better.”

“The other thing that we've learned is we always want to be available to an investor and never differentiate in a negative way between someone that put in $500,000 and someone that put in $100,000. I know what it takes to make $100,000. That's a lot of money. It's harder to make $500,000, but investors contributing smaller amounts still deserve the same amount of information and time.”

Leveraging social media to accelerate learning and growth

Jake is active on Twitter and says what is going on there is fascinating. “The impact of social media related investing is highly underestimated by a lot of major institutions.”

“There are a lot of people that have made a lot of money in their day jobs or through other investments that are looking to invest in real estate. I don't think they're that excited about investing through a fund with many layers of fees and promotes and other expenses. They find a lot of value in having access to a founder or a principal of an investment firm.”

“Even though we've had some of the biggest partners in the world, high net worth and family office investing is a very important part of our future. I think that's an incredible asset for our company. We've raised probably over a hundred million dollars from high-net-worth investors. That's something I want to continue to grow. I'm not the biggest networker out there. But I know who my people are, and going out to Twitter expands that and multiplies it and compounds it.

“Look at the Kardashians. They basically became billionaires from Instagram and social media. That's incredibly fascinating. All of the old business rules are now changing. For real estate, Twitter is an important part of that.”

“There were not a lot of people talking about hotel investments on Twitter, so I felt that it was an opportunity. I'm happy sharing because hopefully people will share back with me and that'll compound. I've learned a lot about other real estate asset classes through some of the folks on Twitter, and I would love to do that for people in hospitality.”

“The thing with hospitality investing is the barriers to entry make it very hard to break in. By speaking about what we do and telling people about DoveHill, that gives people an entry point into something that they may have wanted to invest in but never had the opportunity to do.”

“If you're not connected to a hospitality investment firm, it's hard to invest in a hotel deal. It's easy to invest in a multi-family deal because you can just buy a house or it's easy to invest in a short-term rental because you can just buy a house or a little multi-family building, but you can't buy a little three-room hotel the same way.”

“Hospitality is an amazing asset class”

In speaking with Jake, it’s clear how much passion he has for the industry and investing in it.

“We need to talk more about investing in hospitality. It’s an amazing asset class in an exciting industry that is a lot of fun to participate in.”

You can find Jake on Twitter and LinkedIn. Learn more about DoveHill Capital Management here.

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The Hospitality Investor tells the stories of investors in the hospitality industry for informational and educational purposes only and should not be construed as investment advice, financial advice, or solicitation for any purpose. Please consult a licensed financial advisor to assess any investment opportunity.