Is it Time to Sell Your Vacation Rental Business? With Jacobie Olin and Jason Sprenkle

Alex Husner  0:00  
Welcome to Alex & Annie: the real women of vacation rentals. I'm Alex. 

Annie Holcombe  0:03  
And I'm Annie. 

Alex Husner  0:04  
And we are joined today by two very special guests. We have Jason Sprenkle who is the CEO of Keydata, and Jacobie Olin, the president of C2G advisors. So good to see you guys today.

Jason Sprenkle  0:16  
Yeah. Great to be here. Thanks for having us. Thank you. Yeah.

Jacobie Olin  0:19  
So I was not able to go to the exec summit conference. So I'm not sure we're calling it forum Summit. But you guys did a presentation there. And so we wanted to have you come on and kind of dive into that a little deeper. But before we get started, most people know who you are. But why don't we just do so round of introductions, starting with you Jacobie, tell us a little about yourself? And then we'll go to Jason. Yeah, sure.

So I'm the president and managing partner of C2G advisors. I'm probably one of the unique ones in this industry where I was born and raised in this pirate industry in the late 80s. So I grew up like stripping beds and taking trashes out as a child, possibly put, break missing child labor laws down in the panhandle of Florida. So fast forward many years, I kind of got sucked back into this industry in 2017, and really been been doing strategic consulting and m&a advising specifically here in the short term vacation rental industry super bullish on on the growth of it.

Alex Husner  1:13  
And it's no surprise that you were sucked into it very early. Because we all know your dad, Jim Molan, and we actually just had him on the show for the OGS of the Panhandle a couple months ago and got to hear a lot about those days. I almost feel like I was right there. But definitely a lot of history down there. And that's cool that you got to see it from such an early age because most people definitely don't start in vacation rentals.

Jason Sprenkle  1:37  
Sure, Jason. Yeah. So speaking olje I got a lot of gray hair. I rented space for probably 20 years down here in the Panhandle and worn a lot of different hats, was originally on the development side, ended up running a company called 360 glue down here at the beach, which we ran for 15 years, and then have spun off two software companies, the latest of which is key data. And we're essentially a data aggregator. We're a co op data play, where we work with property managers to put all their data in a pile and spread it back out in ways that hopefully helps them make better decisions, I would still be in the vacation rental business as an operator, but Kobe was kind enough to sell the business for us.

Jacobie Olin  2:19  
So we blame him for your exit.

Speaker 1  2:25  
Thank you guys. It's great backgrounds, and just a lot of knowledge sitting with us here today. So we're excited to dive in and just kind of get an update. That's where we'll start of what you're seeing on the acquisition side. I think things have changed significantly since a couple years ago when some of the largest legacy providers in the space ended up selling and just really completely surprised everybody when those news stories kept hitting but curious to hear your take on what things look like in 2024.

Jacobie Olin  2:54  
I'll start out with this one. So it's crazy now that we are four years out from from COVID. The start of that was just like mind blowing. But what happened was like second half of 2020, really all the way through summer of 2022. Like it was just gangbusters that industry was crushing it. I don't have to tell too many stories on that. But with that as well, m&a was at its height, there was so much investment in the industry, the industry is looked at as sexy from public and private companies alike. And it was crazy, just like what you said, Alex, like, all these legacy companies were getting rolled up new companies are getting rolled up. There was a lot a lot of m&a activity that happened then 2023 happen which was I call kind of like the come to Jesus year, the normalization of the industry, we fell off those heights, some and every metric being looked at was kind of bad comparing it to prior year because that's typically how companies compare themselves. What had happened was so many of these serial acquirers that had been acquiring, they'd done it at kind of the top of the mountain peak peak acquisition, even if these acquires didn't lose any properties during the transition, and I don't need to speak to that. But even if they didn't lose any properties, the acquired EBIT, just from everything coming down and expenses going up was probably down 510 15 at some people were even out 25 30% and acquired EBIT, da so a lot of the serial acquirers kind of were licking their wounds, a little bit of a lot of these companies that had received offers in the peak and had turned them down. We're kind of like, oh, no, did I wait too long? Oh, shoot. So 2023 I would say it was a pretty challenging year all the way around, I think. I think everyone can kind of attest to that. But m&a saw its fair share as well. What has been interesting starting in like late spring here in 2020 fours we're starting to see a shift a little bit more towards the markets opening and where we're seeing that is what I think is because summer in the second half of today. wasn't 24. And I'm sure Jason can speak to this a little bit better. Now we're comparing that to 2023, as opposed to comparing to 22 and 21. And we're starting to see metrics are looking, give or take 5% delta over under prior years. So buyers are starting to get a little bit more active in the markets. Now the face of these buyers might be a little bit different than what we're used to. But I would say it's a pretty healthy market going into second half of this year, whereas really 23 up to like q1 or 24 was was pretty challenging. Do you have

anything to add on to that?

Jason Sprenkle  5:33  
Yeah, I'll just I'll just perspective. I've talked a lot about it. Last couple of chances, I've had to be in front of folks, you know, if you zoom out, I think this trend is not too a typical from what we're seeing in the broader markets, you know, software, company sales, for example, just overall private equity investments, real estate, we all took this kind of even the industries that were clearly going up into the right for 1520 years in a row. I like to think of it as the s&p or, or the vacation rental space, those just steady steady growth year over year after year for so long. COVID put an unnatural bump on that curve, you know, and it just put us up into the clouds for a minute, you know, we had to correct back down to normalcy, I think, and normalcy for me, it's certainly starting to come back into that year over year numbers which are so important from an m&a perspective. But normalcy is still up into the right. Like if you take where we are on this journey, we're still better off in virtually every respect and what we were in 2019 and 2018. And the year before that, and so forth. It's just we're down kind of in a year over year dynamic, but so many other industries are to like you look at valuations just from private equity in general on any software company, like a key data type of company. I mean, for those same two years like it was so frothy, it was frothy for m&a and, and short term rentals. And it was frothy for for software and transactions in general you could you just had money being poured out of these funds into companies, the multiples were dreamy, so to speak. And so adjusting back to where we are now doesn't feel to me like a you know, a two year drop, it just feels like a return to kind of normal m&a activity, normal metrics, you know, normal vacation rental metrics. And so I always think as we look at particularly the last two years and kind of this leveling out, it's really important to zoom out and keep that perspective. A

Jacobie Olin  7:19  
lot of people entered the space within and Jacoby tacked on, you touched on it, like people bought at the height, or they sold it the height. So like some people got out at just the right time. And they're you know, they're golden and some people bought, and they're kind of trying to figure out what that looks like. But there was a lot of people that entered the space like as new people in it, like had never been in it before. And so I wonder, are you seeing some of those that thought that they were gonna get in at that peak when it was sexing and everybody wanted it. And they dreamed of being able to sell now and and they're kind of second guessing what they did and trying to figure out like, how I get out of it now because it really wasn't something they had the interest in being in it long term.

Yeah, so we saw it. So definitely I like the home acquisition fraught for sure, like buying Airbnb and stuff, in terms of like either starting short term rental companies or Airbnb companies or co host or whatever we want to call these different models. There was an influx of entrepreneurs that came in during the Go Go days, and a lot of them came in honestly from like watching influencers like YouTube and Tiktok. It's wild, how many calls I have with these groups now that are like I got in with this person. But that's neither here nor there. A lot of them that came in, they actually came in with a thesis of adding inventory. And they're actually like weirdly good at adding homes or adding condos or yurts or whatever the case, the inventory type is in that market. However, they did not understand how operationally intensive and wild this industry is. So I constantly have those calls with people like Oh, my goodness, this is way harder than what I was sold on this this course and what whatever influence or whatnot. So yeah, so we we have a mixture of some of those that are trying to get out and others that are just like, hey, we're at 40 units in a year. Like, can you point us in the right direction, like what do we do? Well, at

least they're asking. Yeah. For those

Alex Husner  9:17  
ones, you're seeing Jacoby that are coming to you. Now they came back and realizing how complicated the businesses, did most of them replace the current team? Or did they keep teams that were already in place?

Jacobie Olin  9:28  
I'm talking more people that literally just started from scratch. There are a couple that have bought really small, call it like 15 units or eight units here or whatever. Those are tough regardless, there's typically not much of a team there. Sometimes it's just the owner that's kind of doing everything from kind of the larger acquisitions call it I don't know, 50 100 200 units, a lot of those still have been either like a VC backed buyer or private equity backed buyer has been one of the one of the acquirers there.

Alex Husner  9:57  
Are you seeing any trends right now? As far as the companies that are kind of moving closer to that goalpost of being interested in selling is it smaller companies medium large, or just a mix of the gamut.

Jacobie Olin  10:09  
It kind of runs the gambit, I like to think there's like it's segmented or bifurcated by you have like, because this is true in all industries, right now the boomers are retiring, there's this insane generational wealth transfer, that's, that's going to be occurring and is occurring. And a lot of these companies in our industry that bought that were the entrepreneurs, the pioneers from the early 2000s, or even from the 90s, they either don't have kids, or they don't like their kids or their kids don't like, or whatever they're looking at selling. That's one, one end of the spectrum. And those people have built, they have their own kind of pros and cons that they've done for their business. They may have built like a great operational business and have a great brand in those local markets. But they may be on some software's that are a little bit older, and may not have some great systems and processes built there. So that's one end that are selling and then you have the ones like I mentioned that kind of came in over the last five years, the new Airbnb crop, and some of them have built 100 200 unit companies in a couple years. But they are just spent their 3545 years old, and they're like this was way harder. We're great adding homes like Does anyone want to buy this? So we typically see it one way or the other we don't see that often is the Jason sprinkle that spent 15 years in the industry is typically like 30 years or five. Interesting.

Alex Husner  11:27  
Yeah, yeah, it's too early.

Jason Sprenkle  11:32  
Any time like you're seeing a big spike up in value or a big spike down in value. It seems like it may have stagnated some of the m&a transactions because the gap between buyers expectations and sellers expectations get a little separated. Is it right to assume Jacoby, that as we get more into kind of a normal flow, where year over year looks like a little less movement, the expect a little bit more m&a?

Jacobie Olin  11:53  
I do. Yeah, I think that exactly what Jason said, like, the delta between expectations was very wide. That gap was in 2023. So this normalcy just makes m&a happen better because like, yeah, expectations are within a box or a range that typically buyers and sellers are both reasonable on.

So one thing that we see a lot of on LinkedIn, and specifically kind of Instagram and those influencers, if you will, is that there's this notion that you can build this empire, this Airbnb Empire, and that's what they call it. And you know, Alex and I are big champions of like, don't call it an Airbnb, because you're building your house on someone else's land, and you needed to build your brand. But that being said, if you're a potential buyer and you Jacoby, you're negotiating a deal. And someone comes to you and says, I have this multi million dollar Airbnb empire that I've built up, what does that actually mean in terms of translation to being able to sell it? Like, what is a buyer? What do you what do you coach a buyer to look for? And I just find it very interesting that you would put it all around one channel as this world that they're living in and expect that that's something that's easily transferable to another operator, because obviously, they've built it up kind of with their personality and their knowledge of what the business think what they think it is, or you know, versus what it really is. Yeah, great

question. In valuing companies, there's an art and a science to it. And there's tangible and intangible assets that buyers are looking for. And so when we're talking to a seller or to a buyer, like that's what we're, we're kind of working through with them. And one of the components that I think you're hitting on is the kind of the booking channels and how that looks. And the vast majority of buyers, they want to see sellers that are on a diversified distribution, network or platforms, they don't want to see a seller that's too beholden to any platform, including direct bookings. So typically, it runs the gambit, but like, if someone's like 30, to like 70%, anywhere in that range on everything, great. If they're getting like 80 90% on any booking platform, buyers either see that as like, if it's direct booking, then they're probably leaving money on the table. So it's potentially a lift play for a buyer or if it's Airbnb or VRBO. Mostly Airbnb is where you'd see it that might lower the purchase price or have less interested buyers, less quantity of buyers interested, how

Speaker 1  14:20  
important is the brand and all of this to mean how strong the company's brand is. How is that calculated within these calculations? Yeah,

Jacobie Olin  14:27  
that's one of the art components of the deal. There's not like $1 amount like hey, 68% bookings and whatever is you get an extra multiple brand is super important. And I think brand is more of an output than an input. So where you actually see brand and like data that's looked at is like net growth rate or churn rate, employee retention rates, leadership team, Google reviews, OTA review, so a lot of those brain is this like overarching Word and I think brands are awesome to be built. But like the ways that they're kind of looked at in a little bit more of like a analytical approach is kind of what how is this company doing over the last couple of years? So yeah, so a stronger staff more longer term homeowners, great guest reviews, like all that stuff are going to be great functions of a company more than

foundational pieces of the business versus brand perception out there in the marketplace.

So far, I don't think anyone has cracked the national brand code. And I know a lot of people want to and I I hope someone does, but I haven't seen that happen yet. So if I was given advice there, I'd focus on some of these foundational components and let brand brand follow that.

Jason Sprenkle  15:47  
And one of the things to Kobe taught me is that there's definitely a threshold at which you move from kind of a collection of properties to your earlier question about an Airbnb Empire, which shows off all kinds of red flags, I'm sure where you have like a business, right and the business side and Jacoby told me some rules of thumb, but kind of like that 50 properties, maybe a million dollar EBIT a threshold is a good rule of thumb, I think below which you have, you know, contracts, you have relationships, you know, you have some revenue. But above that, you start to have kind of this multi year predictability of a business, right. And we talked about it down at the environment exec, but the components are really EBITA and multiple. And you put those two together, and you figure out roughly what your business is worth. But you've got to get to that threshold level where I have a business that has some predictability in terms of what revenue is going to look like for the next six months or next two years, based on historically what it's look like. And I think you got to kind of get to that threshold before you can create that predictability, because EBIT is simply how much he dropped to the bottom line, right? After some adjustments, but the multiples Were you really start to play around all the things that you reference, right, like, so if I'm buying a business, if I'm buying Alex and Annie, right, and I'm trying to determine, you know, do I want to pay two years worth of revenue four or seven years worth of revenue for in my multiple, I've got to think about, well, what's the likelihood that I'm going to make my money back in that two years or in that seven years and the the data points that Jacoby and I are kind of trying to press to the industry to pay attention to earlier than later, are the data points that a buyer wants to look at to say like, well, what's going to help me guess? Or make an educated decision about what that business is going to do in terms of paying me back? Like, what's his churn rate? You know, how leaky is the bucket? What's its growth rate? How many units are they adding every year? Right? What's the strength of the brand, but only to the extent that as reflected in like their booking rate and the reliability of the revenue and the reliability? You know, they're trying to make an educated decision of if I buy this business, you know, what is the likelihood that I'm going to make X number of dollars for X number of years. And so the more of those data points that you can understand from people like to Kobe, and set as your targets, and the earlier you start tracking them, I think the better you're going to be, that's really what we were trying to hammer home is, I think Jacoby will tell you that nine out of 10 people that he sits down with, realize at the table, gonna have a lot of the things that are critical to the valuing of their business. And they wished seven or eight years ago, even though they didn't know they were going to sell them that they had put those targets in front of them and started to chase after them intense. That's

Jacobie Olin  18:26  
great. I would just add on to that, that if you want to buy Alex and Annie, I'm happy to represent them seven, revenue. Bottom line, we're

looking for 10. But go ahead. Yeah, exactly very high.

I think you hit the nail on the head there, Jason all in, it's really the old adage of like, begin with the end in mind, or like, be proactive, not reactive, like companies like hire us. And we'll come in and we'll try to like, set them up to be focusing on certain metrics and KPIs and stuff of that nature and like, but it's a lot, it's overwhelming to a lot of these companies. And they're wearing tin hats and doing 10 different things. So I think key data, Jason said, they were coming out with that, like, now it's going to have a lot of those actual KPIs and metrics that will just automatically be showing up which is what is needed and great for our industry that now they're doing that. And it's just another thing that's going to help these companies be able to to kind of measure their performance. Now on the flip side of that, I think Jason mentioned this at Verma, Exec. Now the metrics and KPIs are there for everyone to see, all the buyers are going to want to see those reports as well. Whereas in today's market, like it just a lot of it hasn't been there. So like, we're trying to go through raw data and like make some assumptions and stuff of that nature. But now in the future, it's gonna be there for everyone to see the mirror is gonna going to be there.

Jason Sprenkle  19:47  
I think they owe it to me like, you know, the ability to know whether it's something is unexciting is churn, right? The ability to know like, Okay, that's a target that I'm going to be judged on when Jacoby sells my business. So I'm I'd like to know where I'm at today, I like to make a plan to get better at it. And then I know going into it that part of that is I'm going to be judged like by benchmarking industry standards, if I'm turning 10% a year, is that good or bad, and the world is going to kind of know what the standards are. So look for those that are building great businesses and that are focused on the right targets, I think it's an opportunity to set yourself apart, the one thing I've learned is like the fact that the targets are out there does not mean that most people are going to follow them, I still think you'll be surprised that if you get up in the morning, and really get after the things that matter, you're still going to find yourself in a pretty unique class of folks that are really hustling and chasing it and are able to kind of maintain that focus. It's so easy, as you guys know, well, to get up and focus on the turn that's in front of you, and the phone call that's ringing and the guests that needs their an icemaker fix, it's hard to sit down and say, Hey, let's plan for these targets that we know we're going to need, even if they're four or five years out and really have the discipline around your business. And I think those companies will set themselves. Yeah,

Speaker 1  21:00  
for sure. I remember Jacoby, this was probably maybe four years ago, and I think it was pre COVID, that you had a LinkedIn post that you did a back of the napkin analysis, and it just blew up. And that was the first time anybody really saw it, it really lined up of how you're coming to these conclusions as far as what the valuations are, but when so much has changed. And key data certainly being a huge part of that too. And having this information. I mean, back in the day, I don't know how anybody figured out if they were gonna sell their business, they're just there wasn't a whole lot of acquisitions of these companies that have been around for, you know, 20 3040 years. But if you had somebody that came to you, which I'm sure this happens all the time, and they are just thinking about, I want to start focusing on this, I don't know if I want to sell, you know, in the near term, or if maybe it's three years down the line, what's your basic advice for them to get started into that process of the things that they need to be doing now, to be able to get to that point,

Jacobie Olin  21:54  
there's a lot based on kind of where they're at in their journey, one thing I talked to him about is like, keep adding properties, like I know that sounds common sense wise, and and maybe these groups have a certain threshold where they only want to manage properties that are $70,000, and more per year, or whatever the case may be, but like don't stop doing that if you want to work towards a goal of an exit, or even if you're not looking at exiting, you're just going to build a badass company in the end, like the property count is important. Now, as you know, not all properties are created equal. The other thing is, is the start tracking different metrics as you're growing. And some of these just some basic ones, there are some financial metrics to know the most largest expense that these companies have is their staff, the human capital, and the staff are, it's amazing. It's what making this industry go forward. But it's tough. There's cleaners is maintenance, there's reservationists, there's, there's everyone property managers. So that's one of the ones will, it's important for them to be able to benchmark what their staff margins are versus their peers. But really even more important is to benchmark what they are versus themselves where they were prior year where they are today. And so like what we see is like staffing margin is around 20 to 25% of revenues. So if a company makes a million dollars in revenue, their payroll is going to be around 200 250 grand. So like step one, go see what your your payroll margin is, if it's way higher than that, say 500 grand, then a flag comes up, it doesn't matter if it doesn't mean necessarily it's a red flag, but something something's going on either just invested a lot for your next phase of growth, or you're overpaying your staff or it could be the other way around, maybe you're at 100 grand a payroll and it's like, Hey, you're either need to staff up or you're running a little lean. So staffing metrics, super important. The next one I always preach to focus on as as you're growing, is pay attention to your units gained units lost by month. And so what falls under that is your your churn rate and your net growth rate. And now, key data is going to be doing that automating that which will make that a lot easier for these companies. But going a step further, like having notating reasons why properties are leaving and properties are being added can really help you find like you said a leaky bucket or some reason way earlier because we see so many companies six 912 months later, they're like oh my gosh, whatever X Y and Z employee was having all these types of these homeowners leaving I didn't find out for almost a year, whatever the case may be. That's important.

Jason Sprenkle  24:34  
All 200 unit companies do not have the same growth pattern. So going back to like building the story that you want to tell right? So you can create the predictability. So if you've got two companies that are at 200 units, but one of them has been steadily growing 15%, quarter after quarter after quarter after quarter, then when somebody buys that company, they can look at that historical trend and they can say wow, this is like clockwork I know if I bought this business I can add 20 per sent per quarter, versus somebody who's got this erratic growth and loss. So you don't want to just be at a point, you want to figure out from Jacoby, like, what are the 10 things that I'm most likely to get measured on. But then you want to build that graph over time for each of those points so that your buyers can say, this is a very predictable business. My metrics are getting better. So my employee percentage, or my margin may be x, but as important as x sometime as well, is it x getting better? Is it getting worse? Did you just adjust it last week? Because you found that you're gonna sell? Or do you have a long history of getting slightly better on your margins, right, as the company gets bigger, for example, a colleague

Jacobie Olin  25:37  
texted me this morning, and sent me a quote, I can't remember exactly how the quote was, but it was about kind of daily gradual increases, we'll make these exponential impacts in the future. So when we're trying to show people this, where they're at today, where they want to get to like, like Jason said, like, it's, it's one day at a time, that's a way for exponential growth. So

in terms of planning, somebody is thinking that eventually they'll want to sell what do you tell or coach people what that window should look like? If you think at some point you want to sell, then you want to look, is it you know, four years out two years out? What is that timeframe, when you think like, Okay, you really need to start buckling down and getting all your things in order, so that you can present it to somebody in an organized way, with all the metrics that they're gonna, they're gonna want to measure.

In a perfect world, you want to have three years of kind of measuring and having your things in order. Now, I would say 98% of companies aren't going to do that most companies are reactive, because either some buyer reached out to them, or for whatever personal reason, they're the owners ready to either retire or move on. So the next best one I would say is get a last 12 months, whatever that rolling 12 months is going to be. And it starts with legal making sure your homeowner contracts are legitimate. And a lot of these deals they are asset based deals. So I'm not I'm not an attorney, but the contracts are the the actual assets of the company that these buyers are purchasing. And as you all know, a lot of these homeowners are pretty fickle. So making sure that they're not always the most loyal, really, at least a year out. Best case scenario three years out, but the earlier the better.

Jason Sprenkle  27:23  
Can I throw a counter to that to make you think, first of all to cope is realistic, as he knows exactly what he has to deal with when he makes these 12 probably sounds ideal for things that make a buyer want to buy your company and make it more valuable, are the exact same things that make your company more valuable. So if this concept that you would wait at some point to get your house in order, so you could sell it like I get it, plant some flowers out front before you list the house for sale and paint it up. But you always have that same reaction like why didn't we make it this pretty, so that we could live in it, it's the same thing with like, getting your business in great shape, and having great margins and great metrics and great, great growth and low churn are the fundamentals that make you more money and make your employees happier and drive better satisfaction for your for your homeowners? And so like getting what to Kobe today, and understanding what are the 10 things that buyers measure business on is the exact same list as getting with somebody and saying, how do I build a great vacation rental business that later will provide money for my kids or an exit, or whatever, like, there's very few people who are planning on just running it for 20 years and shutting it down. Whether you give it to your kids to sell, or you sell it on the open market, like these businesses are great businesses. And so I'd say get busy today building a great business and knowing what that end is, is a great way to do it. Do

Speaker 1  28:45  
you run into companies that are if they're in that phase, but they are thinking about putting in a new software, property management system or something that's going to be a sizable expense? And they're at that point of like, if I do this, I know it's gonna make the business better. But do I want to do that capital investment also knowing that if I sell the company that buys it might end up just changing everything anyways, like do you run into that? Generally,

Jacobie Olin  29:08  
I tell companies to make decisions that's going to make the company better in the long run. And there are ways to do adjusted EBIT. Da is a subjective number with some inputs and outputs and there's ways to finagle fun financial engineering is how the country operates. But there are ways to if there are like conditional outlays of capital for like a one time fee to a new software to start that like we could add that initial one time feedback I would always say like do what needs to be done to your company now every every scenario is is personal and customized and we want to discuss that but yeah, I think you bite the bullet and do that kind

of going back to the Airbnb empires. One of the things that I see a lot is the coaching of buying the real estate so again, like asset being very asset heavy, but having having An actual asset, because let's face it, when you're managing a property, you don't own the asset. So like you said that the owner contract, they they're fickle, they could go anywhere. So not a lot of stability kind of in that part of it, but owning the real estate is there. And I feel like there's a lot of people that again, bought at the height of the market, so are they going to be able to get return out of it? And for an investor that's looking to buy a business, or they're going to look at a business that, you know, bought real estate within the last few years and say, oh, yeah, I can make it work or, you know, hold on, they bought too high. It's not something that is manageable at this point. Because, again, this influencer discussion is by all this, and you're amassing wealth. Well, if you don't intend to be on it, you think you're gonna sell it is that wealth ultimately eroded when you go to sell? Yeah,

that is, there's a lot to that. So first off, I personally am very bullish on the future of this kind of either Bill Durant or owning the assets, because you can control every facet of the inventory, especially from development from the very beginning. And I think I think Jason's done development himself like you can you can literally build some of these to be purpose built, which I I'm very bullish on some of that I'm actually personally invested in some of these plays. On the property side, they're kind of they're separated, there's this thing called a prop PCO, and then an Opco. So the Opco is what we would think of as, as your vacation rental management company, or short term rental management company, the prop co should be a separated company that just owns the assets. And so there's two completely separate, there should be two completely separate ways that those are run and the opcode charges, the prodco, a market rate commission rate. And that's kind of how it goes. There are some obviously some nuances, but just for the sake of that, I think a lot of groups that bought during the height like it's not going well, the returns are not what they what they thought we've seen some of the bigger groups that actually raise significant funds to do this kind of this prodco large asset acquisitions, either shut down or had to give money back right now there has yet to be that I know of at least a large prop co sale, so called like 50 properties or more that are short term rental focus. I don't think there's actually been a sale of that yet to some institutional buyer. I think we're still, if taking a baseball reference, if it's like a nine inning game for what this new asset class is like, I think we're in like spring training. I don't even think we're in like the first inning of that. But like, I do think at some point, those will start to trade on what would be like traditional cap rates, like other hospitality product like hotels, or multifamily or whatever that may look like but might still be some time interest rates are wild right now.

Jason Sprenkle  32:48  
Yeah, the data is there. Once the cap rates get there, I think you'll see REITs moving into the space pretty quickly. So I think I agree that game hasn't started. But when it starts, I think it's gonna go to meetings really quickly. There's a lot of capital waiting to be deployed when the cap rates get right.

Alex Husner  33:02  
Well, to shift a little bit, I wanted to get your take on what's going on with some of the very large players in the space of because of course, we know things are not really going the best they are and a lot of cases and things have really changed over the years. They're not acquiring companies anymore. But there's also a lot of other players that have come on to the space Jacoby probably some that you've worked with over the last few years. But what do you think from that side of the these more enterprise type Investment Companies what the outlook is for their pace of bringing on more acquisitions?

Jason Sprenkle  33:32  
Is it all about what else they still claim? Obviously, one of the more prolific acquirers at the moment, on the acquisitive side, very bright team really coming at this thing from a different angle on a Jacoby sees it from the m&a standpoint, I see it more from the operating standpoint, but a lot of these organizations, you know, from beach trips to town bank, village stoic organizations are maturing quickly internally, you got a lot of these guys that are very good at making money and have very deep teams that are kind of non traditional players in the vacation rental space. So for me, it'll be very interesting to watch how these operators kind of tackle these things from a tech enabled or just a business enabled data driven side as opposed to kind of your traditional organic vacation rental company who kind of blossom from what's off, you know, a family company into a, you know, growing business. So I'm excited to see which ones continue to buy. And I'm really excited to see how these operational units like so start to make an impact or, you know, real joy village.

Jacobie Olin  34:27  
I agree. I agree with all of that. Like, I think this goes back a little bit to the brand question, anything you had asked earlier? Like, I think it's it's hard to want to try to run one brand in the US and it may may be impossible, I'm not sure. But so far, it's been proven that it hasn't been proven to work. So what we have seen is we've seen some of these, some of the ones that Jason just mentioned, and there are others trying to get into the industry right now that are doing this, this play called a house of brands play. And with that they're they're kind of doing the opposite of a one brand. So with that everyone's slightly different in what they centralize or what they combined, but But essentially, they're requiring strong brands in different markets and kind of like, hey, let's not touch something that's working well, like who would have thought. And then as they're growing other brands, so they're kind of brand agnostic a little bit, the actual buyer is, but as we're acquiring other brands, like, there can be some like shared competitive advantages that one brand may be really good at, like, proactively adding inventory. And another brand is really good at marketing. And another brand is really good at their tech. And so they can kind of share that amongst the different brands, how that works. And, and there's a little bit of centralization that we've seen, that has worked from like, maybe some HR or accounting, some of those back office functions. But yeah, I think it's going to be interesting to see how the next three to five years looks with some of those like House of brands type of plays,

do you see that? Again, just like the cost is really the only big one that we can point to like, it's a public company. So obviously, they're, you know, people can look under the hood and see all kinds of bad, good, indifferent things about it. Is it affecting the perception of a potential buyer or investor as to how they want to come into the business saying like, Okay, I think, to your point about the branding, like trying one brand for multi markets is hard. And nobody's figured out how to crack that code. But are they being used as something to say like, No, you know, I'm not gonna go in this business right now until I see how it shakes out with them. Because, again, public, a lot of eyes, you know, I always say like, we want them to succeed. That doesn't mean they're going to, but you want to route it on? Because it's good for the business. But ultimately, is it good for the business? I mean, is it okay to have them failed? Will that affect us down the road?

We talked about this a little bit at the executive Summit, like Vacasa, you're right, they are, they're the window into our industry, from the investment community. And we all in the industry, we can have whatever feelings we have about them, or we may know certain things where some companies are similar, some are different, but like from the outside, like to be honest, a lot of these investors, they invest in tons of different verticals, so they see the cost, they just think that's what every company is like. So I would I would agree with you like I want them to succeed I think as a industry, we want them to succeed. Now, what does success mean? I think that definition is slightly different for everyone. But in terms of like, outward investors, kind of the two main convert like negative conversations that I have with some of these investors that are asking about the industry is about profitability based on what they see and then about regulations because that's the other part like you'll see this whatever News Journal will come out with this anecdotal story in this one town and and they think every they think the whole industry industry is going to get regulated away. So like those are typically two of the the kind of negatives that we're having to kind of educate investors on

Jason Sprenkle  37:58  
a lot of the cost of that when you get to like the away day and V trips and steelworker monarch, like you've got good solid profitability out there. The only one out of worry about curious your opinion on is the old kind of arbitrage lease type setups like Saunder. Where do you see those heading? Hearing clouds?

Jacobie Olin  38:16  
I've met some bad ass arbitrage Hustler's in these urban markets across the country. It is wild. And I've seen behind the curtains on some of these and they're like, pretty dang profitable. However, they're not sellable. Will that be the case in a couple of years? I don't know. I don't want to speculate too much. But like right now, if they're doing good at scale, I would not want to be part of any of those companies. To be frank.

Speaker 1  38:43  
That's a really interesting perspective. I don't know that we had talked about and we do talk about the arbitrage model, occasionally on the show. But yeah, the fact that you don't have anything to sell, I mean, that's a pretty strong detractor of if you're deciding which direction you're gonna go in this industry. But But yeah, we've seen the same thing. Some people are monetarily doing very well, but then they can be quickly, not doing well. And if things start continuing going down, they can get into really big problems very quickly.

Jacobie Olin  39:12  
Well, that the issue was that there was just so like VCs got involved, which means greed, greed got involved. Well, greed got involved. First VCs put a lot of money into these companies, and that this happens traditionally in Silicon Valley and in startups to go grow blitzscale grow, sign these leases. And then what happened was these landlords and owners of these multifamily buildings and developers, they found out about this. And so they started doing RFPs and getting all of these groups that have raised hundreds of millions of dollars to compete against each other to bid up the price per square foot. And these groups were signing 510 15 year initial term, triple net leases price per square foot 2550 100% premiums higher than what A normal long term tenant would sign. And it was just unsustainable with escalations and all of that it happened in the co working space on a level that was of magnitude greater, like we work in industrious. 10 times larger than sonder. Pretty much every metric you want to look at, but the business model is the same.

That's what frustrates like, for me, particularly, I don't want to speak for everyone else. But like, for me, I see that having come from the business, and it just those are the ones that get the attention. Those are the ones that are like become the influencers. And it's not a good business model. And we've seen some people that are just like, yeah, making a million dollars. And Alex, I have the joke about it is like, make a million dollars by Wednesday have a Bentley by Saturday, but it's like they they're out there, and they're living this lavish life. And that's what you know, these influencers want to portray until people are like, Oh, I can do this. And then they find themselves so far in a hole that they've ruined their future. They've leveraged everything that they have. And so there's got to be some sort of balance. And I think it goes back to overall it's like, how do we as an industry ensure that if people want to get in on it, they're educated from that first unit, all the way up, whether they scale to just five or the 5000 is like they have the access to information. So I think Jacoby, what you are doing to be able to talk to people about what's really important from an investment standpoint. And then Jason, from what he did was to be able to give them data points to look at and know what data points that they are going to have access to. It's so important. And I think a lot of these people that are just entering, I think about when I first entered this space back in the late 90s, we didn't have any of this information, it was just literally like going, can you get 10 units? Can you get 10 people to give you their properties to rent. And now there's just so many things at play, and there's access to it. We just need to make sure people know where to go get that information. So I think it's incumbent upon us on the side of the business to open it up to everybody. Well,

Jason Sprenkle  41:51  
you know what sexy to me are these good old fashioned property management companies, they're great businesses. I love family businesses, their kids don't want to make the beds that generation doesn't want the business. A lot of times, it's Jacoby joked about the beginning. But there's a huge opportunity to build wealth through these businesses is to Kobe, seen firsthand like the old fashioned, build a lot of wood, build them strong and offer great guest services build one hell of a business that these people should be proud of. It's been fun.

Jacobie Olin  42:20  
So lately, I remember talking to Sarah Radford talking about her selling her business. And she said, you know, the first thing she thought was, let's ask the kids and they were like, Oh, hell no, like no one you don't want anything to do with it. Because they had been like Jacoby, they had been in it since they were kids. And they were like, This is not what I see for my future. But but again, they built an incredible business and they were able to exit with a plan and you know, very thoughtful and supportive that plan and do well for it, but still part of our business. So you're absolutely right. I mean, these businesses are wonderful businesses, and we need to do more to support them doing being successful,

Speaker 1  42:53  
absolutely tried and true. It's a good business model.

Jacobie Olin  42:56  
We're fortunate to be in an industry that one is pretty profitable in terms of of these these, building a sustainable business. Like we see margins around 20 to 25%, which is very nice. And then secondly, like there's buyers, like there are industries where like there aren't many buyers out there. So like you're kind of stuck building cashflow businesses, so like, yeah, we're in a great industry, obviously has a lot of challenges, but I'm very bullish on future of this. Absolutely.

Speaker 1  43:26  
Well, thank you guys so much for joining us here today. This has been great. And it'll be exciting to see where the rest of the year goes. And I'm sure that we'll get to hear your update this fall at vrma International and hopefully at Dharm as well. But thank you again, so much for sharing your insights with our audience. Always a great presentation and a lot of great information.

Jason Sprenkle  43:48  
Thank you for having us. Thank you for the opportunity. And a reminder if you want to know how to build a great business called Jacoby and he'll tell you where it's going to end up.

Alex Husner  43:57  
If you need to find out your metrics call Jason.

Jacobie Olin  44:00  
Apparently, we all need to create a Tiktok influencers or something.

I want to see Jason on Tiktok, that'd be great.

Alex Husner  44:09  
Well, you'll be on there with one of these reels from our episode. So get ready. If anybody wants to get in touch with you both. What's the best way to reach out maybe each of you give a contact method. My

Jacobie Olin  44:21  
email my first name Jacobie@C2advisors.com, or you can go on our website or LinkedIn DME you just hit me on Tik Tok.

Jason Sprenkle  44:32  
Jason@keydatadashboard.com pretty boring. Awesome.

Speaker 1  44:34  
If anybody wants to get in touch with Andy and I you can go to Alex and Annie podcast.com And until next time, thanks for tuning in everybody