What's the Deal | Atit Jariwala & Bridgeton Holdings | Hotel Marram Montauk

Deal Info:

• Address: 21 Oceanview Terrace, located in Montauk
• Acquisition Price: $32,000,000
• Sales Price: $78,500,000

Hotel Info:

• Number of Rooms: 96 rooms
• Room Types: Suites and Oceanfront views
• Restaurants: Mostrador Marram
• Event Space: 3,000 square feet plus public areas
• Amenities: Retrospec Cruiser Bikes, yoga, meditation, oceanfront pool, beach services, poolside/beachfront bar, creative workshops, evening firepits, beach firepits

What drew you to buy the Marram Montauk?

What drew me to the deal was the fact that the Hamptons is an incredible landlocked area with the wealthiest folks from the New York City region, the largest city in the country. In general, most of the very prime real estate is on the ocean and most of those properties are residential homes. So you have billionaires buying homes that are ocean-front facing with very few hotels directly on the beach in all of the Hamptons. Marram was one of those very unique properties. 

Also, a major cultural trend is the push toward living an experiential life due to social media. People across various generations are more conscious of how they are spending their lives and their time. Instead of locking in their entire summer at the Hamptons in a share house, they now want to have the optionality to go a couple of weekends or not go at all. The thought of committing and staying in the same place for an entire summer is not as strong as it used to be. This optionality is something that has really helped the hotel market in the Hamptons. 

Lastly, this was an off-market deal owned by the same family for over 30 years. This family was not hoteliers and inherited the property from their parents. They had no in-place revenue management systems and no professional management. These were non-hotel people running the hotel on their own with no professional help. The hotel had also gone a long time without a serious renovation. When looking at the numbers, I knew I had high potential to increase value through renovation and improved management.

How did you secure financing for the hotel? 

Financing this hotel was extremely difficult for two main reasons. First, there were no comparable sales for lenders to look at. For the small number of hotels there are in the Hamptons very few of them trade. Among the hotels that have sold, they were owned and operated by the same families for a long time and since they aren’t professionally managed they aren’t the best comps. Second, lenders look at something called the Smith Travel Report (STR) which is a way to track hotels’ performance. Hotels report their revenue and occupancy daily which gives a sense of the type of revenues you can get in the market. Since all of the hotels in the Hamptons are little boutique hotels, no one reports to STR and thus research data on revenue was limited. 

Therefore, you aren’t able to easily figure out current revenue, revenue potential, or your risk in the deal. Most lenders out there said they couldn’t do the deal because convincing investment committee would be impossible. Luckily, we were able to convince a relationship lender that we knew how to execute our business plan. We’re an established company that had a solid business plan, so they lent to us. Ultimately, for this type of deal, we truly needed a relationship lender since traditional financing in the market was not an option. We performed incredibly well for our lender and as a result of this deal, the hotel market in the Hamptons has become more institutionalized. 

What were some of the strategies you used to increase the property value?

One unique thing about Bridgeton is that we are very focused on design and aesthetics. I’m our head designer, and I work with some amazing people that help me design both the interiors and creative vision for the property. We view properties as their own unique story board as opposed to a commodity like many people do with real estate. Whether it’s a hotel, office building, or multifamily property, we believe you need to have a captivating story that is told through the design and guest experience of your project. What feeling do you get when you walk into one of our hotels? When you first book your stay? When you interact with the people on-site? We think about these questions deeply and care about the customer experience. 

For Marram, our customers are likely driving 3-4 hours from the city and they want to feel like they’re on vacation from the moment they step foot on the property. They want to visually see the ocean, dune grass, and sand. When we first bought the property, there was typical grass everywhere, as if it was a suburban backyard. The first thing we did was rip the grass out and replace it with sand so you had this beachfront feeling everywhere you looked - we want people to be fully immersed in that vacation feeling for their entire stay. We also did a complete renovation of every unit, expanded the windows, and made sure that the exterior and interior design was unique and memorable.

What were unexpected challenges that you encountered with the deal?

One of the most notable obstacles was the limited pool of available contractors to work with, which naturally restricted our choices and added complexities to the construction process. Furthermore, the issue of employee recruitment and retention came into play. Given the high cost of housing in the area, we had to seriously consider how to provide accommodation for our employees. This became especially critical upon opening, as many faced the prospect of a grueling two-hour commute from more affordable areas.

Navigating the intricacies of city politics proved to be another tough challenge, as is common with most construction projects. The hotel involved many public stakeholders, each with their own perspectives and interests, making it essential to carefully manage and address these varying opinions and concerns. Balancing these viewpoints, while keeping the project on track demanded a high level of diplomacy and effective communication throughout the entire construction process.

Why did you decide to sell the property?

We love the hotel and our commitment to its success remains as strong as ever, even under new ownership. We agreed to stay involved with the hotel as the operators which allows us to continue to be involved with the staff and location. The decision to sell the property stemmed from the fact that we successfully executed our business plan. The strategic choice to sell the asset while still maintaining an active role was aligned with our long-term objectives and favorable market conditions. 

What are you planning for the next 12-24 months? 

We are expanding our footprint in California as we just opened a new resort in Sonoma County called Dawn Ranch and purchased another hotel right across the street. We are bullish on Sonoma, Napa, and the Bay Area with a focus on hospitality and distressed office. There should also be some distressed multifamily on the market soon as debt comes due so we have our eyes on that as well. We are also focusing on destination resorts near New York City, San Francisco, and Los Angeles. What happened during the pandemic was that people rediscovered the beauty of America. Whereas people would usually jump on a plane and go somewhere else people realized they could drive somewhere great that’s only a few hours from home. This aligns with the new hybrid work-from-home lifestyle that allows for short weekend getaways where people can work while taking a mini vacation. Further, we are building homes in Los Angeles and potentially starting a multifamily rental development project in the Midwest. 

Our debt platform Erithmitic has also been exciting since many traditional lenders made loans during the peak when interest rates were substantially lower. A lot of lenders are concerned about what is going to happen when their debt comes due on the property they lent on. They don’t know if they’re going to be impaired since interest rates spiked from 3% to 9%+. Properties simply won’t be able to pay their debt service following this rapid increase. Erithmitic doesn’t have those historic balance sheet issues and essentially has a clean slate. We’ve already done a few hundred million dollars in loans, and we’re looking forward to doing a couple billion dollars in 2024.

What advice would you give a CRE pro starting in the industry?

It’s important to spend a bunch of time thinking about what is it in the real estate space that you like. When people say “real estate” they are talking about one of the largest asset classes in the country - it’s massive. You could do so much and you should first identify if you want to be a developer, leasing agent, general partner, mortgage broker, attorney, or any other career vertical that fits your skill set and interests.

You also have to do the work. I’ve met a lot of folks right out of college who are eager and want to dive right into things. However, you need to put in the time to get real experience. You need to dig into spreadsheets, make phone calls, read documents, and put in your time to learn. And to make many mistakes so you can learn from them. The best thing you can do early on is to work for someone who’s going to take you under their wing and teach you because, at the end of the day, real estate is a relationship business. Do a great internship, find great mentors and this will help you figure out what vertical you want to climb in your career.

www.marrammontauk.com

Traded Student Ambassador Program

This interview was conducted through Traded's Student Ambassador Program in collaboration with Thomas DeRuvo of Rutgers University. 

Thomas DeRuvo's LinkedIn