Introduction
[Richard Bexon]
Well, Bill, let’s get straight into it. Cause I know we’ve got a lot to talk about. It’s been a couple of years since we first chatted that you, you guys over there, uh, opened on the flag Monday, but I mean, a lot of volatility in, in Western markets recently, actually, it’s actually pretty good.
Like looking, if you just look, take the stock market, but there is volatility, that’s for sure. Um, and I don’t think that’s going anywhere, you know, anytime soon, but I mean, how has that impacted like Costa Rica, your inquiries, travelers to hotels. Just give us an idea of what you’re seeing.
Market Impact and Tourism Trends
[Bill Graf]
Yeah. I mean, big picture, frankly, I think it creates an opportunity for hospitality operators and investment in Costa Rica. Um, everything I’ve read seems to indicate that us domestic tourism, uh, you know, it’s like a $65 billion decline, uh, uh, mostly from people from Canada, people from Europe.
Well, all those folks still want to travel. Right. And I think Costa Rica is, um, distinguishing itself as one of the destinations that they will end up going.
And so we did have a period of softness, you know, Q1 in our Guanacaste location was a bit soft. And, and I think that that’s. Uh, something that was experienced, you know, region wide, it’s borne out in some of the international rival statistics that ICT publishes.
Um, that being said, you know, June, July and August are actually looking very strong in Guanacaste. So, you know, I was a bit concerned that that trend was going to continue through the rest of the year and we would have this, you know, indeterminate. Period of softness.
And, and it does not appear to have continued. Uh, we have a second property in Monteverde, right? Which, which can pull folks from both the San Jose airports and the Liberia airports.
Uh, and that location has been insane. Actually June and July are we’re setting records. I mean, I think we’re up two X relative to last year.
The Monteverde property is at like a hundred percent occupancy right now. And, you know, I don’t have any data behind this, but my gut says it’s just because of people who would normally maybe go visit the United States or choosing to come to places like Costa Rica.
[Richard Bexon]
Yeah. It’s funny that you say that about Monteverde. You know, I’ve got a buddy that runs Sender hotel and, um, you know, they’re just absolutely crushing it.
I mean, when they started their average daily rate was probably around 150. I think they’re up to like three 50 now. I’m like, I think Monteverde and it’s, it’s missing luxury product there as well.
I mean, I know that that’s not the market you’re in, but it’s missing that luxury product. We have it now and now we have it at the beaches. We don’t have it in Monteverde.
The advantage of Monteverde is if I go to Monteverde in like three and a half hours, I can be in my own Antonio at like two and a half hours. I could be up in Guanacaste. Like it’s not like Aaron out where if I want to go from Aaron out to my own Antonio, it’s a five hour drive.
Now there’s the flight which takes 40 minutes, but like, it’s just very well located.
[Bill Graf]
Correct. I mean, that’s one of the reasons we ended up buying that property. We, you know, it’s very central within the country and then very central between the two international airports.
Lessons Learned and Investment Strategy
[Richard Bexon]
Yeah. Bill, if we had a time machine to go back, like, let’s say, when did your journey start with Onda? About five years ago is when I had the idea.
We bought the property about four years ago. Let’s go back five years. If you were to tell yourself, if, you know, the grayer, older Bill was to tell younger Bill something, what would he tell him?
[Bill Graf]
Raise more money and do more all at once. If I could have gone back, I mean, the opportunity that I, the opportunities that existed in the market in 2020 were real. We’ve seen significant property appreciation since then.
You know, I think we’ve kind of hit a crest. It’s pulled back a little bit and that’s why we’re about to hit the market again to try to double down on Costa Rica real estate. But if I had, you know, if I didn’t already kind of go all in back in 2020, if I had more money that was on the sidelines, I wish I would have taken down two or three or four hotels at that point in time.
[Richard Bexon]
Where would you have done that though?
[Bill Graf]
One of the things that we learned, and this is specific to our model, you know, we’re not a luxury concept. We’re a three-star concept with the amenities of a three-star hotel and call it the vibe or the soul of a hostel. Lots of programming, lots of guest socialization.
And we derive actually less than 50% of our revenue from registered hotel guests, the people that are staying at the hotel overnight. So we need a lot of traffic from the outside. We have people maybe staying at the Airbnb across the street or down the road or at other hotels.
Coming by to use our coworking space or either drink at our bar or book tours and activities. And, you know, what we say is it sort of shut up and play the hits, you know, for our concept, we are not trying to be a tastemaker in new off the beaten path locations. You know, where our model does best is in these very highly traffic destinations.
The kind of, you know, there’s no secrets here. We’re talking Manuel Antonio, La Fortuna, Monteverde, Puerto Viejo, Tamarindo, Santa Teresa, Nosara, Uvita, I’m probably missing one or two. But if you looked up the top 10 tourist destinations, that’s really where our brand belongs.
Selena Hostels Opportunity Analysis
[Richard Bexon]
Okay. It’s funny that you say those destinations because, you know, and you and I would briefly chat in between, but before this about selling the hostels, because I was about to ask you, you know, why do you think or not think Costa Rica is a still good investment, but especially in the hospitality market, because those guys invested heavily in the hospitality market and it didn’t kind of make it work?
[Bill Graf]
Well, that’s a situation that I’ve been following very, very, very closely since we launched. You know, I would be lying if I didn’t say that, that Selena was a bit of an inspiration for what we’re doing. I think we do it a hell of a lot better than they do.
But Selena’s failure has nothing to do with Costa Rica. And they were a publicly traded company there for a while. And if anybody’s interested, you can fact check me in their public filings.
But Costa Rica was their most profitable geography. Costa Rica did not sink the ship. The other geography sank the ship there.
They followed a very similar trajectory to we work. They raised a lot of venture capital back when interest rates were near zero and the money was flowing and they were structured for growth. You know, they never structured for profitability or for margin.
And so the fact that they ultimately went bankrupt about a year ago another company bought them out of bankruptcy, but didn’t buy the brand. It’s all a bit fuzzy. And so you saw then some of their Costa Rica locations or maybe all of their Costa Rica locations rebrand to a new brand.
They operated under that brand for nine months. And then that brand sort of disappeared three or four months ago. And so I think actually this creates a massive opportunity.
Again, you know, please double check me. Their public filings show that Costa Rica and Central America was a highly profitable geography for them. I think that concept is a great fit for this geography.
But there’s now 10 ish former Selena locations in Costa Rica that are up for grabs, more or less. These are properties that I’ve been pursuing, that we’ve been talking to some of the landlords about. The process has been unfolding rather slowly.
I think the landlords are maybe are not feeling the pain quite yet. You know, they’ve been without a tenant for three ish months. You know, they’re trying to make sure that they maximize the value of these assets.
So I think they’re being a bit cautious. And there are a handful of groups that we know are interested. I think you’re going to start to see some of these locations reopen under new brands, but there’s still many of them up for grabs.
So I think it’s a huge opportunity. We’re trying to take advantage of it. You know, if there’s anybody listening that was contemplating making an investment, I mean, if you’re looking for a 40 key kind of fixer upper hotel in Costa Rica, I can’t think of another time when this kind of inventory would have come online all at once.
And I suspect that as we get through rainy season, the property owners are going to become more motivated.
Market Conditions and Investment Timing
[Richard Bexon]
Yeah, I mean, I agree. I mean, it’s still I don’t think reality is hit for a lot of people in hospitality of what this year looks like. And I think the low season, you know, end of August, September, October, November, up until, you know, it’s really going to give you an idea of what the pattern, the new pattern and the new pattern probably is not that different than 2019, just that the tide rose a little bit.
But now we’re getting back to that cyclical, you know, motion that we always had in tourism, whereas before, you know, it was kind of a lot of straight flat lines or increasing lines, you know, post pandemic. So, yeah, it’s definitely going to be interesting this year. And I think that people are going to start to feel the pinch, you know, towards the end of the year.
And if not, they’ll get through high season and then they’ll feel it, you know, the following year. Correct.
[Bill Graf]
Now, I agree. And we’ve seen some of that, you know, in the market, you know, more in Playa Grande, we did see a few operators, you know, struggle with with the weak Q1. I think everybody kind of forecasted for a very, very strong Q1 as we’ve had since the pandemic.
And then when it came in just a bit weaker, it caught a couple of people by surprise. But again, I think if you’re a savvy operator, that represents an opportunity. There’s nothing wrong with those properties.
It simply may have been an an inability to plan for a rainy day.
[Richard Bexon]
Yeah. Well, I mean, look, if they listen to our podcast back in November, we were going to say it was probably like anywhere from an eight to 10 percent reduction, you know, on Q1 in next year, you know, with 2025 compared to 2024.
[Bill Graf]
Yeah. I mean, my favorite statistic to look at that is right. There’s the scheduled seat capacity.
I think ICT publishes it with some regularity. So it’s it’s not backward looking international arrivals. It’s how many seats have the airline scheduled into the future?
And we found that that has been very predictive of tourism activity.
Real Estate Investment Market Assessment
[Richard Bexon]
You know, you know. So, I mean, how would you describe the current state of the real estate investment market in Costa Rica?
[Bill Graf]
Oh, I mean, it’s a different world than when I entered a few years ago. Like I said, I think if you’ve had cash on the sidelines, this is a good time to make an opportunistic investment. Like I said, you know, there’s been a bit of a breather here.
Like you previously mentioned, that cyclicality is back. Some operators are feeling it. We’ve had some softness in the exchange rate.
That’s, you know, put some pressure on operators. And I think that that’s a good thing. There are, you know, cohorts of property owners and hotel owners who are looking around, similar-ish to 2020, going, maybe this is the time for me to exit, right?
And so if you’re disciplined and you’re well capitalized, I think there are good deals to be made. I would, you know, caution everybody, you know, make sure to take your time, do your diligence. You know, you asked me, Bill, what would you do if you could go back to 2000?
You know, make sure you find a good attorney, right? And a good accountant and make sure that you have people really diligence in these deals. Take your time, move slow, dot your I’s, cross your T’s.
There’s no rush. But for the right disciplined investor, I think this is the best opportunity we’ve had since 2020 to get into this market.
Operational Challenges and Business Complexity
[Richard Bexon]
Yeah. Well, I mean, I’m negotiating the purchase of a hotel at the moment anyway, but I’m slow playing it, dude, because I know what’s coming. So I’m in no rush, whether if I get it, great.
If I don’t, I don’t, you know, but I don’t want the hotel. I want the, you know, the real estate around it to do projects. But yeah, I think it is, you know, a great time.
I mean, I think when people invest in Costa Rica, depending on what you’re investing in, I mean, if you just want a condo or something like you can, you know, a realtor can kind of help you out with that, but I still think you need a great lawyer. But I think if you’re actually making an investment in any operating business in Costa Rica, like just get good advice, like running to a realtor probably is not the best one on that one, but probably speaking to people that are in the industry that have done things and be like, look, if you were to do this, you know, how would you go about it? Because I saw too many people just run off and say, hey, I want a hotel.
They’ve never operated a hotel before. They don’t understand how it works. And, you know, the realtor’s like, this one’s a great one.
It’s rainbows and unicorns. And then you buy it and realize it’s not.
[Bill Graf]
Yeah. I mean, I will say one of my biggest learnings from when I started this is that Costa Rica is a challenging geography to professionally operate a business. You know, I think Americans tend to think sometimes that it’s the wild west.
It’s not. I mean, it’s a highly regulated country, which is great. I mean, that’s one of the reasons why it’s a leading tourism destination.
It’s safe, it’s clean. You can drink the tap water. You know, very highly literate and educated population, healthy population.
But, you know, you’ve got to interact with the social security system and the CAJA and you’ve got to make monthly filings. You’ve got to make sure you stay up to date on all those payments. You know, the value added tax that was implemented, I don’t know, six, seven years ago.
I don’t remember off the top of my head. There’s monthly value added tax remittances. And you need to make sure that you’re getting all of your factura electronicas from your vendors, that you’re issuing them to your clients.
And this stuff, it’s not impossible. But candidly, I mean, these are things that I had no awareness of before I started. And what I’ve realized is that if you don’t have a good grasp on those back of house operations, it’s death by a thousand cuts, right?
If you find yourself outsourcing HR, recruiting, CAJA, accounting, whatever, you know, the margin that you would have had operating that hotel is actually going to your service providers who are doing, you know, a not insignificant amount of bureaucratic paperwork for you month in and month out. And so, you know, I think I’ve actually spent most of my time in the last five years building out. I thought I’d be focused on the guests and the music and the cocktails and all the fun stuff and designing the menu and all that.
And don’t get wrong, we had to do all of that stuff. Where I really spend most of my time is ensuring that we’ve got processes and systems in place to efficiently deal with all of the bureaucracy that goes on. And so I would just tell people, be prepared to learn it or make sure you’ve adequately budgeted for it or hire a hotel management company, you know, to come do it for you.
And that’s one of the things that we’re exploring. We today have only managed our own properties. But now that we’ve figured this out, I’m sort of sitting here going, you know, we could be doing this for other people.
I’ve built, you know, we’ve got an ERP that’s specifically tailored to boutique hotels in Costa Rica. Well, guess what? There’s a lot of boutique hotels, you know, we don’t need to recreate the wheel.
Labor Costs and Financial Considerations
[Richard Bexon]
Yeah. I mean, I think that’s the thing that people just don’t understand of like, buying something is fine, but it’s the operation that’s the difficulty. And also is the cost is in the people and the social security costs as well.
Like just that is where, you know, 40% of your expenses, sometimes even more, 50% of where your expenses are going. It’s in people.
[Bill Graf]
Yeah. I mean, that’s our single biggest expense line item is people, right? People then rent on the property and then probably F and B.
But, you know, keep in mind that the wage that you see in a contract is a fraction of the total spend that you will have for that individual. You know, I could do the exact math, but you should gross it up by 40 or 50% by the time you take into effect the Christmas bonus and, you know, the Christmas bonus that you have to pay, you’re obliged to pay it, whether your business makes money or not.
[Richard Bexon]
It’s not a bonus.
[Bill Graf]
No, exactly. It’s a one twelfth incremental addition to their salary. And if they leave your company voluntarily or involuntarily, no matter what, you still have to pay the prorated portion to them when they leave.
And so that is a real cost. I’ll raise my hand and be the first to admit that’s not something I had on my radar or in my financial model when we opened up, but it’s very much on my radar now.
Costa Rica Tourism Advantages
[Richard Bexon]
What’s been easy about operating in Costa Rica?
[Bill Graf]
I don’t ever have to sell people on Costa Rica. Everybody wants to come to Costa Rica. It’s never a battle of, you know, people being unfamiliar with the country or feeling that the country is unsafe or unsuitable for a family vacation, a corporate offsite, you know, a digital nomad trip, whatever it may be.
We have had the best tailwinds given our geography. I mean, it is a great, if you’re going to be operating anything that relies on tourism, I’m glad we picked this country to start. I definitely wouldn’t change a thing.
[Richard Bexon]
I agree. I think someone said to me, I can’t remember the exact thing, but it was like, Costa Rica is like a, you know, a 40 year story kind of in the making, with a lot of luck, you know, behind it. I mean, it’s just, it’s kind of organic.
Like if anyone tells you this whole thing was planned, it wasn’t. Like there was kind of, you know, a nice canvas laid out to begin with with some general direction. But from there, it’s been very, very organic.
You know, it’s all the rules and regulations that just stop the stuff, you know, which stops the, like in Panama, you can go in and build a tower in two seconds and do the beach. Like you can’t do that stuff here in Costa Rica. Like you can, but in certain locations.
Infrastructure and Accessibility Benefits
[Bill Graf]
And so I think you raise a really interesting point and sort of dovetails with the Costa Rica comment. The fact that there are two high traffic international airports spread out throughout the country, providing easy and direct access from North America and Europe and the rest of Central America and South America is a huge bonus, right? So like one of the things that we really lean into at our properties to keep ourselves full during slower periods is corporate offsets.
And we’ve taken it for granted, right? I mean, our first location is about an hour drive from the Guanacaste airport. You know, you bring a whole team down from five different cities in the United States.
They fly in, we send one sprinter, picks them up, brings them to the hotel. And we have been diligencing hotels in other geographies. You know, we had a partner across the border in Nicaragua, Playa Gigante.
We’ve looked at some in Panama near Bocas del Toro. And my knee jerk was, oh, that’s great. We can roll out our corporate offsite program to these other geographies.
I’m like, well, wait a minute, hold on. If they wanna go to the Southern part of Nicaragua, you’re still flying into Liberia, you’re getting in a van, you’re doing a border cross and then you gotta do it again when you got, you know, and it’s not impossible, but it’s a much tougher sell depending on the use case of the group that’s coming down. You know, Bocas del Toro, I haven’t even looked into and I haven’t been there, but, you know, the easiest way to get there, I think is actually flying to San Jose and then either take a Sansa flight, like a little puddle jump over or take a van across the border.
You know, it’s like a nine hour drive or something from Panama city. It’s wild.
[Richard Bexon]
Yeah, I mean, I’ve done it both ways. I’ve flown and I’ve also driven, you know, I’ve done it from both sides, from Panama city, from Costa Rica, from San Jose, you know, border crossing, go driving down to Puerto Viejo, crossing the border at Sixola, going across, getting the boat, you know, across, I’ve flown in and yeah, a hundred percent agree. So, yeah.
[Bill Graf]
But you like me, you know, I’m an adventure traveler. That stuff’s kind of fun. If people are coming down for five days, seven days, that’s make or break, I think for a lot of people planning these vacations and it’s what tilts people, you know, towards Costa Rica rather than some of these other geographies.
It’s just so easy. You land at the Guanacaste airport. Customs is generally not a disaster.
It’s easy in, it’s easy out. There’s no land border crossings. And I think it just makes Costa Rica that much more attractive of a destination for foreigners.
Onda’s Success and Expansion Plans
[Richard Bexon]
Yeah, I agree. I agree. Well, it’s, look, Bill, it sounds like on the higher ground there’s been a huge success.
You know, so congratulations. I know it’s, you know, a lot of work. And I always say to people nobody will ever understand your journey and the pain that you’ve been through.
You know, even me that’s done it, I don’t understand your pain in your journey as you won’t understand mine. But we kind of know that there’s pain on that journey for sure. But like you guys now moving into Monteverde, as you mentioned it, like what’s next for you there and what are you guys looking to do?
[Bill Graf]
Yeah, so, you know, it’s been a long journey. And like I’ve alluded to, we’ve learned a ton. We came down here and it was an idea, right?
And this was me with an idea. I had raised money mostly from friends and family on the basis of my reputation and my passion for the project. And they trusted me to find a hotel, buy that hotel, renovate that hotel, open that hotel, and then operate it in such a way that the guest reviews were good, the employee experience is good.
And most importantly, that the unit economics worked. And if we failed to do any one of those five things, this would have failed, right? And so I’m sitting here four or five years out, depending on how you count.
Glad to report that we’ve achieved all five of them. You know, the ratio of investment to cashflow from that first property is fantastic. We’ve essentially taken that cashflow and poured it back in.
We bought a second property up in Monteverde that I’ll talk about in a second. But we do deliver a true best-in-class experience in Playa Grande. We’ve got 4.8 out of 5 on Google Maps. We’ve got a 9.4 out of 10 on booking.com. I’m sure somebody will fact check me on this, but I’m pretty sure the only hotel of scale, you know, with more than 100 reviews that has better reviews across the board than we do is the Four Seasons Papagayo. And I, you know, very happily be mentioned in the same breath as them, given that they cost 10 to 20 times as much as we cost.
And so we really viewed that first hotel as a proof of concept to de-risk all these things, to prove traction in the concept and the brand and the team. And we had this opportunity a few years back to buy an existing Pension up in Santa Elena. So this is right on kind of the town square.
They call it the Triangle up in Monteverde, situated directly between two national forests in an incredibly high traffic area. And so we’re ramping up to convert that to the second owned or branded location. It’s, you know, this is not a concept.
This is a repeat of the formula that’s already working in Playa Grande, just in a location with way more foot traffic and way more exposure that sits between those two international airports. And as I mentioned before, foot traffic and exposure are incredibly important for our business. And so we expect the Monteverde location to achieve better unit economics than the Playa Grande location.
Monteverde Market Performance
[Richard Bexon]
And you probably will find that, I mean, I’m actively looking in Monteverde at the moment, you know, personally, I’m not in a hotel space, but to, you know, to build some villas up there, just because I see that, you know, I’ve seen it happen in Arenal. I’m seeing it now in Monteverde and I just look at the numbers and go like, if you look at the hotels that are there and what they’re charging per night, you just follow them, if that makes sense. Like they’re the leaders.
[Bill Graf]
I mean, like I said, we bought this hotel. It’s an operational hotel. We’ve been operating it for a little bit over two years now.
You know, we’ve been going through the entitlement process, which is time consuming. We’re at the end of that, right? Which is why we’re about to kick off our fundraise.
I’m sitting here every day when I look at our occupancy, our ADR reports, the traffic. I wish we would have been able to convert this thing two years ago. It is having, I mean, we are end of July going into August.
Typically, you know, not a slow part of the season, by no means the busiest part of the season. We are, I’m not joking, we are at 100% occupancy tonight and tomorrow night and for the next two or three nights. And we expect that we will get enough last minute bookings that we will be essentially 100% full through at least mid-August.
I can’t explain it. I don’t know what’s going on in that market, but it’s an incredibly robust market.
Investment Opportunities and Fundraising
[Richard Bexon]
And I mean, with that, I mean, are you looking for investors in Monteverde? I know a while back, you know, when you bought the property, you did. I mean, what’s, you know, I mean, for anyone listening here that potentially looking is, you know, to invest in Costa Rica, we kind of, I would say more of probably a hands-off approach.
I mean, what opportunities lie there?
[Bill Graf]
Yeah, so we’re about to kick off a fundraise. I’ll share with you, we’ve got a teaser. We can probably put it in the show notes or something.
We bought the property using existing cash flows plus existing investor money two years ago. We’ve shepherded it through that entitlement process, right? So we’ve de-risked it tremendously.
We own the property. We’ve been operating it. We’ve got the entitlements.
We’re kicking off a $1 million fundraise to renovate the property and rebrand it as Onda, right? And so we’re going to keep, call it 50% of the property and just redo 14 rooms. And then the other half is a teardown.
We’re going to build the kind of Onda clubhouse, you know, beer hall thing. We’ve got all the fund renderings and stuff that I can share. If anybody’s interested, it’s a good turnkey way to get exposure to the Costa Rica market and access to a team and a brand and people who have institutional knowledge now because we’ve been doing it for five years.
And you just get a K1 in the United States. It looks just like any other US investment. And so, like I said, this is not a concept.
This is a repeat. We’re taking everything that worked in Onda Playa Grande, copy paste up to Monteverde and just, you know, turning up the juice, turning up the volume.
Investment Philosophy and Final Recommendation
[Richard Bexon]
Well, good for you. I’m sure it’ll be a huge success. And again, anyone that’s interested, you know, I’ll put all Bill’s contact details in the description down below and you can kind of reach out to him.
But my last question for you, though, Bill, which I’d have to ask everyone is if you had $500,000 to invest in a business or real estate in Costa Rica, where would you invest it and why? I mean, other than my own deal? Other than your own deal.
Yes, of course.
[Bill Graf]
I would chase one of these Selena properties. I think that in the coming months, you’re going to have some very motivated sellers or landlords. And I think there’s going to be an opportunity to structure either a lease or a lease with the option to purchase or some sort of structured purchase with some very attractive seller financing.
Because Selena, you know, like I said, their Costa Rican locations were profitable. They have great destination, great locations within many of these destinations. I mean, there’s nothing wrong with that infrastructure.
It needs a little bit of love and it needs a rebrand. You know, but a lot of people who come down to Costa Rica to do hotel development want to hire the architect and do a ground up build. And you can do that, but it takes a lot of time and it takes a lot of learning.
And I think if you’re really focused on returns, you’re going to get better bang for your buck buying and rehabbing one of these existing properties.
[Richard Bexon]
Yeah, I agree. I agree. I mean, if you can buy in Costa Rica before you build there, I mean, you know, unless you just can’t find what it is that you want.
Correct. I mean, you and I have been in that building world and, you know, it’s a chainsaw juggling. It’s rough.
Exactly. But well, Bill, it’s been an absolute pleasure having you here on the podcast. Appreciate you taking time to kind of share your knowledge experience with us.
And as I said, anyone interested in chatting with Bill, I’ll put all of his contact details in the description. But I appreciate your time, sir.
[Bill Graf]
Yeah, likewise. Good to see you again. And hopefully we can grab a beer or coffee the next time I’m down in Costa Rica.
Sounds good, bud.
[Richard Bexon]
All right. Have a good one. Bye.
