Update: The anatomy of Outbound Hotels

CHICAGO – An outdoor-focused, experiential brand launched this week – not from one of the major corporate hotel companies – but by Chicago-based investment firm Waterton, which announced Outbound Hotels with properties just opening in Jackson Hole, Wyoming, and Mammoth Lakes, California. Hotels in Stowe, Vermont, and Yosemite National Park are under development with Waterton Executive Vice President of Hospitality Matthew Mering telling Hotel Investment Today that further announcements should be made early next year, if not a bit sooner.

The concept was first brought to life in March 2020 just as the pandemic was rearing its ugly head. Nonetheless, Waterton and local partners persevered to close on the Jackson Hole property by summer 2020. Undeterred by the virus and led by their conviction in the potential of the white space in market that was already emerging pre-COVID, the second property in Mammoth, the third-busiest ski destination in the U.S., was signed by the end of 2021.

The converted Virginian Lodge, an Outbound Hotel in Jackson Hole, just opened in mid-August after a heavy renovation and is performing well, according to Mering, while Outbound Mammoth in Mammoth Lakes, California (the former Sierra Nevada Resort) has just opened its doors. Systemwide ADR is expected to be about $200, give or take based on seasonal demand, and hopes for sit RevPAR north of $125.

Waterton EVP of Hospitality Matthew Mering

While most projects will be conversions in high-barrier-to-entry markets, the new-build Yosemite property is schedule for 1Q25, and Stowe should open in July 2024. Mering did not disclose acquisition prices or general costs surrounding developments and repositionings.

Next up, Mering said he likes Ashville, North Carolina, the Oregon coast for a first beach play, and the central California coast.

Mering, who previously served as the vice president of acquisitions at Graves Hospitality in Minneapolis, would like to see Outbound grow by three to four properties a year and longer-term, Waterton has identified some 50 markets that could fit the Outbound profile. They also could see international growth down the road with Mering mentioning markets such as Costa Rica, northern Australia surf towns and even the Swiss Alps.

Brand inspirations

Mering was first inspired by a call from a friend who was staying at an uninspiring mid-market branded hotel near the Grand Canyon, paying $500 a night. “I started looking at some deals in these markets and was blown away by how interesting the supply-demand characteristics were,” Mering recalled. “These are high barrier to entry markets where transient demand is pretty stable – even during a recession. We really liked the investment thesis and even pre-COVID saw the white space in the market between trophy assets and select-service hotels. We play right in the middle, providing a more experiential product.”

As more long-term holders and in the hotel space since 2007 when it owned more full-service suburban hotels, Waterton also like the secular tailwinds for outdoor-inspired travel, which continues to gather steam even post-COVID. “We think the long-run fundamentals are solid. We’re big believers in the space,” Mering said.

What Waterton is developing are properties focused on creating community and connections, each close enough to a town, where “Outbounders” can immerse themselves in the local culture, and close enough to nature where they can hit the trails, bike, ski, climb, or swim utilizing adventure activity partners to book experiences. Properties should have outdoor gathering spaces, potential for fire pits, as well as potential for good F&B with an emphasis on the beverage side to connect with the local community.

Fireplace suite at Outbound Mammoth in Mammoth Lakes, California

For example, in Jackson Hole, Waterton struck a deal with a local legendary hamburger joint owner who had gone out of business several years back due to being priced out of an escalating real estate market. The Outbound version of concept offers counter service at the bar during dinner and soon at lunch. Mering said the approach allows them to do as many as 1,000 cover a day or as few as 100 and still make money. “When we do food, we try to keep the operating model lean so we can accordion operations based on demand,” he added.

Outbound Hotels is partnering with Springboard Hospitality for property management on the first two projects but does not have an exclusive relationship with them. Amenity partners include Solo Stove (known for their smokeless fire pits) and The Kin (an app that offers 24/7 pet health and nutrition support).

On-property, the brand offers complimentary campfire s’mores, morning yoga by the pool and weekly programs like karaoke night and live acoustic sessions.

The Jackson Hole property features two hot tubs, seven built-in fire pits, an all-season pool, the Virginian Saloon, over 4,000 square feet of event space and the newly opened Midtown Liquor convenient shop that includes a drive-through window.

Outbound Mammoth has been reimagined with renovated rooms and chalets plus 10 new cabins and 20 villas perfect. The property also has a new pool area, an on-site restaurant, a steam room, a dry sauna, fire pits, offerings for pets and a welcome beer from the newly opened restaurant.

While tired limited-service hotels in these markets might look like great conversion opportunities for Outbound Hotels, Mering said they typically don’t work due to outdoor space constraints. Waterton also doesn’t like markets that are too remote. “We are not looking to be in the middle of nowhere 40 miles from civilization. It’s too tough to staff and operate,” Mering said. “We want to be in towns that specifically have amenities like restaurants, bars, breweries, retail, and vibrant culture… My rule of thumb is if I can’t get an espresso within five miles of the property, we drop it off the list.”

Sourcing, financing

Getting deals done and financed, not surprisingly, has taken a lot of sweat equity, but Waterton is having success with community and regional banks, according to Mering. They are also utilizing PACE financing and a government lending program for markets with less than 50,000 population. “By nature, we’re a low-leverage investor, typically sticking to 50%,” Mering said. “We have a good track record and a strong balance sheet. So, given those dynamics, we found success with financing.”

Far from the only developer pursuing this niche, Mering said their laser-like focus has actually made it easier to source potential deals. Waterton tends to source more off-market deals and when a market is identified, Mering quickly puts boots on the ground to develop local relationships. “It’s pretty easy to go into a market and wrap your head around it quickly and understand who the key stakeholders are and who you need to know to source deals,” he said.

We like to find assets with good bones that are interesting and maybe even quirky. We also look for markets that have multiple seasons of demand, and we define that internally as markets that have occupancy north of 60%.

Matthew Mering

Share this quote

To date, Mering said sourcing deals has required a lot of phone calls, knocking on doors and saying “no.” “But if you’re scrappy and persistent, you should generally find situations where people are open to selling, whether they’re estate planning or finding people who got into the hotel business and didn’t know what they were signing up for,” he said, adding that they have not yet found a lot of deals with refinancing or debt issues.

Of the four first deals, two are exterior corridor properties, which Mering said does not scare Waterton. “I think they’re kinda fun and the designers love them, too,” he said. “We like to find assets with good bones that are interesting and maybe even quirky. We also look for markets that have multiple seasons of demand, and we define that internally as markets that have occupancy north of 60%.”

Waterton will partner on its deal when its accretive to the project, which is the case in both Jackson Hole and Yosemite, but to date it has retained majority stakes to keep control and make major decisions.

One decision Waterton has taken since the inception of the concept is to add more meeting space to match evolving demographic and demand trends. “We’re seeing an increase groups and corporate retreats,” Mering said. “So, we’ve learned to love meeting space, especially in the shoulder season, when you need to drive a little bit of demand.”

Growing “bleisure” demand has also led Waterton to sprinkle in where possible more stand-alone cabins at their projects, essentially acting like extended-stay rooms with more space, kitchenettes, etc. For the new-build at Yosemite, the bulk of the rooms are standalone cabins made modularly in factories and delivered to the site. “Building horizontally lessen the development risk and people love having their own space,” Mering said. “Plus, you get an ADR premium. So, we think it's a winning formula when it comes to development.”