Stomp Capital

Richard Fertig used to travel the world as co-head of investments for a $4 billion hedge fund. Now, he’s taking everything he learned throughout his career to build an institutional-grade hospitality investment firm –  Stomp Capital – to take advantage of the opportunity he sees in short-term rentals (STRs).

In this article, Richard shares:

• The evolution of short-term rental (STR) investing

• Why research and development are important

• Protecting against the downside

• Building for tomorrow

• Edgecamp: An example of a mispriced asset

• Portfolio construction in short-term rental investing

• Why Stomp Capital is using institutional-grade infrastructure

• The feedback that inspires him

• Remaining open to serendipity

Let’s jump into it…

The evolution of short-term rental (STR) investing

The first wave of short-term rentals in the modern era – “STR 1.0” – was only a decade ago, Richard told me. “You could put anything on Airbnb and have success. It could be poorly decorated in poorly marketed – it didn’t matter. There wasn’t enough supply so all you needed to do was list a property and you made money.” 

“STR 2.0,” where Richard believes we are today, is marked by people taking the operations of short-term rentals much more seriously. “They realize there’s real money to be made so they’re acting as professional hosts. Response rates are less than an hour. They have systems in place to create consistency. I call it ‘mom-and-pop professional host’.” 

Where Richard and Stomp Capital are investing and operating right now is what they call “STR 3.0” – which combines the best of design, service, and personalized experience. “We see guests that want a kitchen and multiple bedrooms in their lodging, but that’s not enough. They want to do activities when they travel. They may want to tour the river with kayaks. They also may not want to cook every night.”

STR 3.0 is defined by world-class lodging in world-class locations with added-on amenities and activity packages that are customizable. “There’s no pressure for guests to use any of our amenities. If they love to cook, they don’t need a chef. They can get daily hospitality service if they want it so they don’t need to unload the dishwasher or take the trash out.” 

“What we do is offer all of the amenities that you would normally associate with a full-service hotel à la carte. They’re happy to pay for what they want, but they don’t have to pay for what they don’t use – unlike a hotel. Whether a guest uses the gym or not, they’re paying for it. If they don’t need a spa, they’re paying for the infrastructure and everything else that supports the spa. In our case, if someone doesn’t want a spa, they can still have an in-house masseuse come in. We work with these professionals as independent third-party contractors and don’t have additional labor costs.”

While they operate in “STR 3.0” today, Richard and his team are already looking ahead to what’s next. 

“We’re seeing a strong opportunity for what we think will be ‘STR 4.0,’ and are starting to experiment to do due diligence on creating a membership program for our locations to cross-sell opportunities for similar markets. If someone loves kitesurfing with us in North Carolina, we can suggest they visit our location in Costa Rica. Membership provides access to both locations. Members get first access to reservations. It’s early stages but we’re going through a lot of research and development on this.” 

Why research and development are important

Richard sees more and more people are investing in short-term rentals. As the founder of Short Term Rental University, he thinks it’s a great trend but feels many are missing out. 

“If you’ve never taken the opportunity to travel and stay in different chalets or hotels and form a unique hospitality thesis, how are you going to create and provide a differentiated experience?”

Not everything he sees while traveling is used immediately, but he is constantly observing and making notes about what could be done in the future. “I’m a big believer in connecting the dots as Steve Jobs so frequently talked about. That’s why I always have my radar on for what’s new and intriguing. Things that I haven’t seen done before or done very well.”

Protecting against the downside

Protecting against loss in investing is important to Richard, and something that he learned as co-head of investments at the hedge fund he used to run.

That’s why Stomp Capital starts its search for new investments by focusing on regulatory risk. “We don’t want to make an investment that could become illegal in the future. So we begin our process by screening for places that we know we can legally operate in for a very long time.”

Once they have confidence in the regulatory environment, they continue with due diligence. “We do painstaking research to unearth the unexpected. Everyone can look at the same investment thesis and have the same conclusion. But the way we want to invest is with minimal risk.”

“Everyone’s looking at optimal upside. We look at that. But we also spent a lot of time understanding the downside scenario and what risks there might be through poking holes and reading deeper and hiring lawyers and speaking to local officials to understand what the environment is really like. Understanding what’s there and trying to get ahead of any circumstances that may change.”

Building for tomorrow

The next step in Stomp’s process is often creating new, purpose-built developments.

“It’s really easy for me to know if I like a location and the vibe there. If I like those, we then try to create something there that doesn’t exist yet. To do that, we start with understanding what is in a location, identify what is missing, and then think about where and how we could create that.”

Richard and the Stomp team have developed a clear macro perspective on what’s relevant now in the world, what will be in the future, and what will bridge that gap. “We’re always swimming to these blue ocean strategies where there’s not a lot of competition,” he told me. 

Their thesis is that lodging and hospitality have been around forever, and the incumbent hospitality brands do a good job where they’re focused. “But they don’t really understand the short-term rental model yet.” 

Richard intends to take the best of hotel and hospitality and make it applicable to both today’s consumers and tomorrow’s consumers. “I build things for my kids and their generation.”

Edgecamp: An example of a mispriced asset 

Richard’s Edgecamp Sporting Club in North Carolina is a good example of Stomp’s investment and development strategy at work. 

“If you look at a place such as Turks and Caicos, oceanfront real estate always traded at a premium. That’s what everybody wanted. But with the advent of kiteboarding, the sound became attractive because that’s where the water is flatter, safer, and more reliable. As kiteboarding has increased in popularity, we’ve seen a very significant increase in the desirability of sound-front land. Now sound-front land is rivaling oceanfront land in demand.”

By noticing trends and changes like this, Richard bet that the same thing would happen on Hatteras Island, one of the best places in the world to go kiting, and built Edgecamp there. It quickly became the first property facing the sound there that is renting for more than an oceanfront home. 

“Edgecamp is an example of how we find assets that are mispriced because of changes in how people want to travel today.” 

Portfolio construction in STR investing

As a former portfolio manager, Richard sought to diversify across seasonality, natural risks, and other risk factors. 

The same principle holds true for Stomp Capital today. The firm is diversifying geographically with locations spanning from Costa Rica to the Hamptons to mitigate natural risks. “We don’t want all of our properties to be exposed to things such as hurricanes or wildfires.” 

But the firm also diversifies across product types – from purpose-built STRs to boutique hotels – and the audiences it caters to through sports and activities to ensure resilience. 

Why Stomp Capital is using institutional-grade infrastructure

Richard and his team have their eyes on creating a category-leading firm, which is guiding the infrastructure decisions they are making today. 

“We are focused on building for an institutional exit, and that means our enabling infrastructure is key. Our investment in an institutional-grade investor platform and 3rd party administrator (Juniper Square) ensures our fund is built right from the start.” 

Forming an institutional-grade investor relations team and providing quarterly letters, reports, and NAV tracking in a modern investor portal is something that will give investors transparency today and allow Stomp Capital to scale. 

And this focus on infrastructure extends beyond investor relations to other areas of their operation. “Beyond institutional systems and infrastructure, all of our partners are vetted through a similar lens from legal to accounting to architects and designers to ensure they are capable of supporting a scaled operation.”

The feedback that inspires him

What inspires Richard most today is the feedback he’s receiving from guests. “We have the most influential people on the planet choosing to stay at our properties and paying top dollar to do so. They are experiencing new things and we’re blowing their mind.” 

An example was the Edgecamp guest who is a partner at Sequoia Capital and owns a piece of Airbnb who told him, “I don’t know what you’re doing but I don’t know why everyone’s not doing it!”

“Those kinds of statements really give us a lot of motivation and excitement to create more properties and experiences like these,” Richard said.

Remaining open to serendipity 

Richard’s journey to investing in short-term rentals began with a trip to Hatteras Island to get out of New York City when he wanted to learn how to kiteboard, and that experience still guides him today.

“I very much believe in serendipity and good fortune. I think being well prepared and being a good person helps in creating this. When I first came down here, the last thing I had on my mind was an investment – and certainly not an investment to the size that we’ve made now.”

You have to keep your eyes open for opportunities, Richard shared. “You never know when inspiration or opportunity will present itself.”

—

Follow Richard Fertig on Twitter or LinkedIn – or learn more about Stomp Capital here.

If you liked this article, you may also enjoy reading about how Richard provides bespoke hospitality and how Stomp Capital is becoming a talent magnet.

—

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.