Duo on the 'attack' with Trailborn brand launch

NEW YORK CITY — Michael Weiss and Ben Weinberg know they must hustle their way to generating winning results in today’s challenging economic environment. Perhaps that mentality is even more important as the duo tries to introduce a new brand inspired by the great American outdoors called Trailborn in what is becoming an increasingly competitive space post-COVID. But the former investment bank/real estate private equity executives don’t seem the least bit intimidated and talk about attacking their goals with relentless and meticulous focus on execution.

“It’s just the only way to do it. If you’re not hustling, you’re going be left behind,” Weinberg told Hotel Investment Today.

Trailborn recently opened its first property at the eastern entrance of Rocky Mountain National Park in Estes Park, Colorado, and over the next year will add hotels by the Grand Canyon; in Highlands, North Carolina; Wrightsville Beach, North Carolina; and Mendocino, California. Highlands is the next scheduled opening this summer.

The first property at the Rocky Mountains includes 86 rooms across two properties (40 at Trailborn Rocky Mountains and 46 at Trailborn Rocky Mountains Outpost). They include a restaurant, bar, and café, as well as two retail markets offering a selection of curated local products and grab and go items. Extensive outdoor public areas include two seasonal pools (one at each property), patios, porches, and communal fire pits, all with views of the surrounding Rocky Mountains.

Trailborn co-founders Ben Weinberg (l.) and Michael Weiss

The duo has a $100 million initial fund in place through its Castle Peak Holdings investment and development company with plans to keep expanding beyond the initial seven acquired assets – maybe a few more acquisitions before the end of 2024. “We feel that this is a 25-year project – it’s going to take a very long time,” Weinberg said. “We’re going to have to be patient and very careful about how we piece this together.”

They take 100% of the equity in their deals via dedicated, discretionary funds, typically with no more than 60% leverage. They control everything top-to-bottom to generate outsized risk-adjusted returns on a longer-term hold, capturing the compounding market growth in outdoor destination markets. While costs vary by asset, renovations are coming in between 25% and 45% of their cost basis.

“We are ultimately cashflow and yield investors and want to own great real estate for a very long time that generates really attractive yield,” Weinberg said. “When we think about the risks that we’re taking, we want to generate double-digit stabilized unlevered yields to feel like we’ve done our jobs.”

The group has the advantage of being vertically integrated, building an investment firm, an operating company and a brand at the same time. It will primarily convert older properties, ranging from a Red Roof to an older motel with exterior corridors, into elevated hotels with full-service restaurants and bars.

What they don’t want to do are complete tear downs, convert too small (20-room) properties, and they won’t compromise on location.

“The real estate side of the differentiation just comes from being extremely careful and extremely picky about how we select our markets and our locations,” Weinberg said. “We’re as much market investors as we are asset investors. So, when we think about a market, we’re very focused on massive barriers to entry. We would like it to be very difficult for others to come into the market and build new hotels. We also want to see that growing demand [in a market] before COVID, during COVID, and after COVID. If you have those things, whether competitors are coming into our markets or not, we have a very clear path to generating returns that we feel are very attractive.”

We are ultimately cashflow and yield investors and want to own great real estate for a very long time that generates really attractive yield, When we think about the risks that we’re taking, we want to generate double-digit stabilized unlevered yields to feel like we’ve done our jobs.

Ben Weinberg

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Weiss and Weinberg are also in the business of finding off-market opportunities, pounding the pavement every day, they said. For example, the Mendocino deal came through a cold call to the owner. In fact, every deal they have brought to Castle Peak has been off market with certain people on the team purely dedicated to finding those opportunities. “That is part of our edge as we think about how we differentiate ourselves as an investment firm in terms of our focus. Then, of course, we have the ability to operate these assets and maximize commercial outcomes.”

Weinberg said the development team “lives and breathe these markets. We know the markets that we want to get into and we’re not trafficking in New York City where institutions are looking at every deal. We’re out there trying to talk to owners of existing hotels to find deals because we don’t need to do 50 deals this year. We need to find the right deals that pencil, and to do that we have to work hard.”

The backstory

The investors got their start when someone called them to look at the Estes Park market, where they stayed at a less-than-stellar branded hotel for $300 a night. They recognized a white space – both as a real estate and consumer opportunity and decided to further investigate a value play. “You just don’t find many opportunities in your career, and we said, ‘let’s go for it,’” Weinberg said.

The reality is, the concept is scalable, but it is not an easy venture. “Today, it is not competitive based on the size versus the opportunity set,” Weinberg continued. “That will change over time… But the state of the industry today, when we talk to our peers, is that the businesses that exist [in this segment] are simply not sizable enough to be butting up against each other just yet. That’ll happen in the future, and I imagine there will be some consolidation at that point. But we’re just not there yet.”

Building the platform

Weiss goes back to being vertically integrated as a big advantage to cracking that code as they can better manage all outcomes. “We’re very focused on design and authenticity – something that we think is somewhat differentiated… We’re designing spaces that are functional, but that are also unique and authentic to the location,” he said.

Porch setting at Trailborn Rocky Mountain Outpost

Good food and beverage is something that they also think is missing in a lot of these markets. “Creating a great bar experience and a lively gathering and social experience is something that we’re very focused on,” Weiss said.

They are also trying to act as guide for guests off property and training teams to be experts in their markets. In fact, Trailborn has created field guides for guests before their stay to better understand where they should go and offer curated experiences that can be booked directly via the website.

ADR on an annualized basis is expected to shakeout in the low-$300s and to get there, again, location is key. “We exclusively put ourselves in what we call iconic outdoor destination markets,” Weiss added. “We’re not in second- or third-rate outdoor destinations. We’re taking people to, to real bucket list places like the Grand Canyon. Some of those are more regional gems like Wrightsville Beach, North Carolina. But when we go to those markets, we try to plant ourselves in the best possible location within the market.”

Being self-aware about not being true operators, the partners have surrounded themselves with experts who share their passion for the business and have that detailed mindset. They currently have about 200 people on staff with about 20 at the corporate level.

To create value, the pair understands that the unlock is figuring out how to develop Trailborn at scale. “Building a platform designed from scratch to attack the opportunity at scale in high growth, high barrier to entry markets – and own and operate in those markets for a very long time is not easy to do,” Weinberg said. “But, if you can crack the code, it starts to become incredibly interesting and exciting for us. It’s been our vision from the beginning and we’re still early days.”