Eric Resnick – Ski, Golf, and Vacation Investing at KSL (EP.322)

24:19We then spent probably three or$4 million, which at the time was a lot for pools. And we created a zero-entry beach pool for kids. We had a couple of water slides for more for teens. We had multiple pools for adults. And then, as we described it, we turned the resort inside out. Not only do we make that available to the hotel guests, who didn't realize you could have that type of experience in a resort environment, but we also then sold a membership to the local community, who didn't realize that they could actually access the local hotel for all these types of amenities. It basically was a country club for the local community.

24:51We had a golf course too, so you could buy a traditional country club membership, but really it was a country club without the golf. And over a thousand local families bought that membership and this became their safe haven. This is where they and their families went to make memories. And that was a need that no one saw in the local community. They weren't clamoring for this. The hotel guest wasn't clamoring for it, but once we built it, they came. And so that's a big part of what we try to do from a consumer perspective is always think about what's coming next. How can we innovate? How can we really execute at a superior level?

25:25And if we do that right and provide great service, creating value for investors, that tends to happen. With your history and culture of, let's say, being frugal at your old corporate headquarters, how do you think about the balance between keeping costs down at your properties and making sure you have the valuable experience for the customers? It's really important to distinguish between what drives the customer experience and what's just cost for cost sake. We don't need to have a fancy back of house, but we need to have really appropriate amenities, the pool, the spa, the gym, the restaurants and so forth.

26:02But at the same time, just because you're not gonna over-invest in the back of house doesn't mean that you don't wanna be investing in your people. It just means that you want to justifiably put the higher visual impact capital into the guest facing areas. So I think our teams do a great job of balancing how do we make sure we're taking care of our guests and how do we still make sure we're taking care of our people? Just the definition of how we do that is a little bit different. When you're looking at investment opportunities, what are the different types of investments that hit your sweet spot in terms of a potential target?

26:37We love to invest thematically. So we identify a theme that we believe has legs, and then we like to vertically integrate so we can own both the real estate associated with that theme as well as an operating capability. So we'll build out a management team that can again go and execute and replicate. An example of that would be in the ski business. One of the things that we did in the late 90s unveil was we were fast followers on creating basically a discounted season pass for skiers. This is now fairly common, but at the time it It wasn't a small place called Bogus Basin, Idaho, that had cut their prices on season passes by 80 % and sold a zillion of them, et cetera, et cetera.

27:13We followed that trend. We charged 200 bucks, I think it was, that first year. And you could ski as much as you wanted at Keystone and Breckenridge. And that was in 1998 and had great success. Vail Resorts was far more successful doing this after I left, but they were doing incredibly well with this. They identified and expanded on that product, ultimately calling it the Epic Pass. We saw that being an opportunity, but we didn't have the critical mass of resorts to really create a competitor. And then in 2017, we had the opportunity through a series of transactions to create Altera Mountain Company.

27:43And in doing that, we had the opportunity to launch what we thought could be an equally exciting, if not even perhaps better consumer option, which we ultimately named the Icon Pass. And we had the idea of basically taking what were then, I think, 15 or 16 ski resorts that we had owned, that we bought through five or six different transactions, merge them together. and started with that core nucleus. And from there, we partnered with another 35 ski resorts or so to create the Icon Pass. So you had access not just to our own resorts, but to this wonderful network of global resorts, world-class destinations from Aspen to Zermatt, Switzerland.

28:17And that was game-changing. So that was the opportunity we saw. And then we were able to bring together five or six investments around that theme, build out a world-class management team to then go after and tackle that opportunity. When you talk about the vertical integration of something, could be Altera, another one of these investments, what does your team look like to have the specialization to run a hotel, and then you have restaurants, and then you have a club membership and real estate, so there's different businesses that all have to come together? There are, and it's hard. So we try to do a couple of things.

28:49One is we bring together people of diverse backgrounds, both in the conventional sense that we talked about today, but also in the sense of who brings hospitality expertise, who brings restaurant expertise, who brings real estate development expertise, who brings marketing expertise, and bring those people together and have that melting pot of ideas and stimulation that comes from that. The people side of all these businesses is hard, but I think that's something which we've come to appreciate over 30 plus years of doing this. We have about 15 or 20 different of these vertically integrated platforms, each one of which has a really dedicated, wonderful management team.

29:24We try to complement that with our own team. We call it the strategic operating team at KSL Capital Partners, who are really working hand in glove with each of those individual portfolio company management teams to business plan, to set priorities, to deploy capital, to manage the team and oversee the investments. What's different about operating businesses across these different areas all vertically integrated at the same time? we're sometimes operationally detailed to a fault because all we do is this we used to do these things called freezer tours and it's actually an old mike shannon story but we were touring a golf club i think it was in florida and joey garan our general manager they're a wonderful guy when it was talented guys whoever worked within the space he was taking us on this tour and we'd inevitably go in the freezers of the kitchens and start looking around and you learn a lot by going through the back of house.

30:18How clean is it? How organized is it? And going through that, what we noticed was there were a third of a pound hamburger patties and there were lobster tail in the freezer. So we get done with the tour and Mike says, Joey. And Joey's like, yeah, boss. He had this thick Southern accent. Yeah, boss. What do you need? Joey. Great tour. Only two problems. What do I ask you about? Yeah. Yeah. What do you need, boss? Well, there's lobster in the freezer. Yeah, yeah. You don't have lobster on your menu. Oh. And then the other one is, Joey, you have third pound burgers in the freezer. Yeah, yeah, we do.

30:53What's wrong with that, boss? Well, on your menu here, you sell quarter pound burgers. Why do you got third pound burgers? And coming out of that, what Mike always said was inspect what you expect. Getting into the weeds like that, I think, while some could certainly say it's overly micromanagement, it set a tone culturally for those details mattered. Getting the details right is something which we really pride ourselves on. Now, we don't do the freezer tours as much as we do, as much as we used to, but I hope our teams are on their own way. We're going to take a quick break in the action to tell you about SRS Aquium.

31:29Want to make sure your M &A processes aren't stuck in the past? Partner with a company that's been defining the future of dealmaking for nearly two decades instead. When it comes to M &A innovation, SRS Aquium has reshaped the way that deals get done, streamlining processes for maximum efficiency and minimum headaches. Professional shareholder representation, online M &A payments, digital stockholder solicitation, SRS Aquium pioneered each and continues to set the bar for game-changing innovation. To leave the days of disjointed deal management behind and define your future with SRS Aquium, the smartest way to run a deal.

32:14Learn more at srsaquium.com. That's S-R-S-A-C-Q-U-I-O-M.com. And now, back to the show. I'm curious what the competitive environment looks like when you're looking at something to buy. It's consistently inconsistent. But there's no one other firm that looks just like us. And we have great admiration and respect for many of the private equity firms that are out there. If you are at Blackstone and you're looking at a large multi-billion dollar deal, my guess is they could predict that KKR or Apollo or Bain or Carlisle are looking at that same deal at some level. We don't have someone of that nature.

32:59There's three travel and leisure firms, and they're all going to look at every deal. I would say that on the larger transactions, we do tend to see a Blackstone, sometimes a Starry Capital. On the smaller transactions, and a lot of what we do by identifying these themes and creating these platforms is we end up deploying capital on a lower average check because we had 30 select service hotels that we've bought at X dollars a clip to aggregate to a pretty big number. But individually, they're$20 or$30 million checks. You have a different competitive set for that. So I think what we find is sometimes we see the REITs, sometimes we see smaller real estate funds, sometimes it's high net worth investors, sometimes it's a strategic already in this space, sometimes it's a large private equity firm, but it's usually not all those people.

33:42It's a subset of that on any given deal. And one of the things that we feel really proud of is because we've been in this sector and no other sector for 30 years, to an institutional investor, we're a financial firm. To the industry, we're really a strategic player, no different than a public company that's been investing in the Marriott, say, in the hospitality space, who we greatly admire. So what that gives us is the ability, I think, to be a preferred partner. And that leads to off-market or proprietary deal flow, which at one point I thought was really an overused term. As we've grown and been in this space and gone through cycle after cycle now over this time period, I've realized it's actually not.

34:19And we've gone from about one-third of our deal flow being proprietary to now two-thirds of our deal flow being proprietary. What are the things that you've experienced where you see there are opportunities or risks to avoid in your portfolio companies that someone without the industry specialization might miss? I think of people who use too much leverage. Leverage is the enemy of liquidity. And liquidity is where value comes from. And so I would say that's the most common thing is the reality is if you over leverage an asset, especially urban hotels, and we don't do as many of those, but urban hotels are cyclical because a lot of their business comes from corporations.

34:58Corporations have hard times and they say cut costs. Cut costs means cut travel. That doesn't apply to your family vacation, nearly the same way it applies to your job. And because of that, as soon as the CEO of JP Morgan, Jamie Dimon says, cut back, say on travel, JP Morgan bankers won't travel. And if you're a hotel that has a lot of that demand, you're going to see cyclicality. If the owner of that hotel used too much leverage, guess what? They have a problem. I'd say that's the most common thing. The other thing I would say is all the ancillary businesses around a hotel, someone who tends to look at urban hotels, 80 % plus of the revenue, maybe even 90 % is coming from the hotel room rate.

35:33You go into the resort world, perhaps 30%, 40 % of the revenue is coming from the hotel room rate. All the other revenue comes from everything else, the restaurant, the spa, the retail activities and other amenities that they sell. If you don't really understand the complicated rule set of running a retail shop versus running a hotel, running a restaurant versus running a golf course, running a spa versus running a health club, then what can be a 30 % margin business can rapidly become a 0 % margin business. And if you take a one-size-fits-all approach to owning a hotel, you will dramatically underperform when it comes to the resort segment.

36:09I'd love to walk through each of the five investment types, even though they cross over so much, and just get your sense of where you're seeing opportunities. Maybe we start with hotels. Hotels today are going through an incredible rebound coming out of COVID. Travel was the epicenter of impact from COVID. Hotel opened to stores 100 years ago, and basically has been designed to be open every day since for most hotels. Most hotels closed during COVID. It was really, truly remarkable. So coming out, you're seeing this revenge travel start to normalize a bit now, but not all hotels are equal. So we're still looking at opportunities for hotels that haven't yet come back, that maybe are being impacted because interest rates are 10 % and they have problems with their debt stack, and that creates a catalyst for opportunity.

36:54Yet we have confidence that the travel ultimately to those hotels will come back. Maybe that's because they're more corporate focused. Maybe that's because they have more international travel. Maybe they're located in a part of the world that hasn't opened as recently. And so we're pretty interested in those types of hotels that have underappreciated upside, yet a near-term catalyst for a challenge that needs to be overcome. And we can come in and deploy capital. Maybe it's in partnership with the existing owner, or maybe it's buying from them depending on the situation, but try to provide a solution.

37:21And that solution gain opportunity for our investors. So that would be one area that we like a lot. How about the hospitality around the hotel? When we see about hospitality, two other areas we've invested that we continue to like and see growing. One is management of independent or brand franchised hotels. So we have a business called Davidson Hotels, for example. The hotel companies themselves have evolved. They started off as hotel owners like Marriott and Hilton and so forth. First, they were hotel owners. Then they were managing hotels for third parties. Then they really became franchisors.

37:53They have wonderfully powerful loyalty programs, a lot of systems and purchasing programs and group sales and things you can participate in, but they're really branded loyalty programs in many ways. And so we've seen a gradual shift away from hotel management to hotel franchising. Now, it's been probably a positive, frankly, for the hotel management companies or the Marriott's and the Hilton's because they've grown exponentially over the last couple of decades. But it's opened up an opportunity for really high quality independent managers like Davidson to be able to manage franchise hotels that are franchised with those great brand names or independent hotels, which is another area that is growing tremendously because the internet allows us to get a sense of quality and what the experience is for an independently branded hotel that you used to rely on the brand name for.

38:36Now you don't have to do that. I can see pictures of the hotel room. I can see pictures of the amenities. I can see consumer reviews. So Davidson specializes in managing both types of those hotels. We see an opportunity to continue to expand in that space. We think it's going to be a long-term growing space. And the other one is experiential dining or restaurants. So we own a business called High Hospitality that owns Uchi, which is wonderful. Think of it as like a Nobu-like concept, modern Asian Japanese fare. And we're in Austin, Dallas, Houston, Miami, Denver, soon to be LA, New York, Scottsdale.

39:07And that business we see growing a lot by adding new locations. Those new markets are building off the success and the model we have that we think we can replicate. So we'll look for other businesses that fit those themes. It's all about experiential, whether it's a certain type of resort hotel. We love eco resorts, for example. We all want to be more conscious of our carbon footprint. We want to have experiences when we travel that are more indigenous to where we are. So we have wonderful tented resorts, as an example, at varying levels, you'll call it three to four star and five to six star, where you're staying in a wonderfully furnished tent.

39:40You're in the middle of nature, whether it's in British Columbia, on the inlets from the Pacific Ocean, or in the outback of Australia, or outside a national park in the US. Your carbon footprint is 80 % less than what it would be in a traditional hotel. And you're basically living in the middle of nature, but you're not sacrificing a comfortable bed and a shower to do it. So to us, that's a great space to continue to grow in as an example within hospitality more broadly. How about trends on the recreational side? Well, to us, recreation, it's all about combining activities that are healthy, effectively where you can work out and get exercise in that are also fun and shareable with people who are your closest friends and family.

40:16So skiing this year, for example, had its record year by far ever in the history of skiing. Skiing is the perfect sport that fills that definition. There's no better vacation in my mind than a family ski holiday. You're able to be healthy. You're able to be outdoors. You're able to do it with your kids, your closest friends and loved ones. So that to me is growing. I think you're going to see more and more socially conscious travel that pairs recreational opportunities like biking. I think e-bikes are going to open up the world of travel in a whole new way. Because all of a sudden, there's different companies that do bike tours in varying form.

40:50Some are doing hiking tours, some are doing bike tours, but biking in particular, they've done bike tours through Europe for a long time. If you think about e-bikes, the number of people who will go on a bike trip, bike 30 to 50 miles a day for four or five days. We did one through Normandy with our family last year, which was just tremendous. The number of people who will do that will expand tenfold as people get more and more comfortable with e-bikes as a form of transportation. And you can still have a workout, but you can choose how hard you want your workout to be more at your pace than when you're biking in a traditional way like we were last summer, which was still wonderful.

41:24I think that's a trend that will continue to grow meaningfully and open of new travel options for people. When you see a trend like that, say the e-bikes as part of a vacation, how do you think about integrating that either separate business or is that something that you try to bring into one of your portfolio companies? Well, I think it depends. So within our ski resorts, for example, it's a natural add-on to do e-bike tours and e-bike rentals across our ski resorts. And we're doing that more and more. You could also have a whole new platform that focuses on e-bike tours or traditional bike tours.

41:56There's several companies that already do it. Perhaps we create our own. Perhaps we create a partnership with one that already exists. We could link that. For example, my wife actually was vacationing in one of our French properties last year called Capalong in Provence. And she's happened to tell me that there were numerous bike tour companies with their vans that have to move all these bikes around in the parking lot. They were staying at our hotel and they were going out and doing rides in the French countryside in Provence? Why weren't we arranging that and going between the five or six properties that we have in France today?

42:31Why didn't we have our own tours that were doing that? We could partner with someone, we could provide it ourself. So I think there's logical tie-ins with existing portfolio companies that would be, I think, very successful. We haven't quite gotten there yet. How do you think about the travel services around that? That's one component, that tourist part of your hotel stays? Well, I think that there's certain things that you would have thought with the internet would have gone away. Travel agents, concierges. The reality is there's so much information available. There's clutter. How do you go sift through all the clutter to really curate the trip you want?

43:09And at the high end of travel, we tend to focus on the mass affluent, think of that as a top 10 % or so of income earners. They really are looking for a curated experience. There's a thousand different tours I can do in Provence, but which are the three that really I should consider while I'm staying there, when I'm going there from the United States and I really don't know it very well. I'm going skiing in Steamboat and there's 50 different family activities to choose from for what to do in the evening or the afternoon or a day off from skiing. Again, which do I choose? So I think we have to do a better job.

43:42I think we're getting there. There's more room left to run, but we need to be that curator for people. And we can do that in part through a more powerful app-based experience for our resorts. We can do that in part through our staff on property, but I don't think we can just rely on the internet to do it for us. Trip advisor is good. It's not that good. There's still gaps there at the local level. And so I think if you think about that last mile of service execution, that's where we come in. When you start talking about stratifying different customers you're serving, you get into clubs. What is the club business that you like to look at?

44:18We like varying forms of clubs. Clubs have a mixed reputation. Are they exclusionary? That's not the goal. When we think of clubs, we think of an opportunity for people with a like-minded interest to come together. And by pooling their resources effectively, they get access to something they couldn't otherwise get access to. Maybe I'm wrong about this, but no one person is going to be able to create a private ski area. But 900 families at Yellowstone effectively have come together and they help to fund a private ski area. The same thing that's happened in golf or a health club doesn't have to be at the most exclusive level, but effectively a club allows you to get access to an amenity set that on your own, you probably wouldn't be able to afford or recreate.

45:01So we think that's great because that allows you to have a theme around which to build. So golf clubs, for example. Golf clubs have a certain appeal if they're just targeted towards golf. We've always focused on what's a golf club experience that gets broader to really attract the whole family. So when we invested in a company called Club Corp going back to 2006, which was and is the world's largest owner of private golf clubs, it was founded on a basis of anyone who wanted to join could join so long as it wasn't full, wasn't exclusive in that regard. Our focus became how do we modernize it so that it appealed to the whole family?

45:35So we added lazy rivers, we added big pools, we added fitness centers, we created swim teams. We have a separate company now that has golf clubs and we're adding pickleball everywhere. We did family pasta nights. And yes, we made sure the golf club was great for the golfers and the family, whomever that was. We made sure there were junior tees everywhere. We had all sorts of summer camp programs. So when you do that in the club, you basically make it less exclusive, make it more active, and broaden its appeal. We found that to be a real formula for success, and I think that the consumer really wants that.

46:09I'd love to circle back to your days of when you were the financial modeler. I'm not sure I was ever very good at it, but I'm happy to try to go back to those days. How do you think about turning these assets that you're buying and improving into investments? What is it that you're looking at when you're modeling out to say, hey, this is going to turn into a good outcome. I think you look at a few things to start, and it's like anything. It's layers of the onion you start peeling back. What's the addressable market? How big is it? Who else is doing something similar to what you're doing? Is there someone to aspire to that you can benchmark from?

46:46Do you have access to that data? What's most closely in our experience that we can look at that's comparable to the thing that you're trying to model. And then you're trying to build out a case of what you think is achievable with a reasonable margin of error. And in doing so, the one thing you know is that you're wrong the moment you start. That's the reality of every model. And we can't take them as gospel because I don't think we've ever hit a model spot on. It's virtually impossible. So it's understanding the impact of different variables on the outcome. What's most important? What is highly impactful to the outcome?

47:23And what isn't? and don't sweat the things that aren't and really focus on diligently those things that are most impactful and looking as far and wide as you can for comparability. And now one of the things we look at a lot is, so how did something do during COVID? And before COVID, it was how did things do during the GFC? And we still have access to that data typically. So we've stress tested this industry incredibly significantly in the last two decades. And so we can look at that and say, how bad can it get? Think of it as the second standard deviation outcome. If that outcome is not too bad, if I can get my money back and even that outcome, it feels pretty good.

47:59Now I can focus a little more on the upside. What can we do? What can we do to transform this into something that the customer hasn't yet experienced in this market? What's the available employee base, management team, talent to be able to execute against that and start to focus on those things? Curious how you think about capital allocation. On one hand, you have real estate assets, capital intensive. On the other, you have a franchise-like operating model and everything in between. As you're making an investment that has all this integration, how do you think about where to deploy your assets to get the most out of the investments?

48:32Portfolio construction has to be a big part of the focus for any investor. So from our perspective, we want to have appropriate diversity, but all within a sector. So you're making a sector bet, obviously, with travel and leisure, but we think of it as managing our corporate exposure versus our leisure consumer exposure, managing our international exposure versus our domestic US or North American exposure, managing our more growth-oriented business exposure, unit growth-based business or something that was more of a franchise business or a restaurant business that's more consumer-oriented than our more real estate-type asset-heavy exposure.

49:06And when you look at that, it's all about maintaining an equilibrium. We don't have a prescriptive way of doing it, But generally speaking, we want two-thirds or more of our businesses to be real estate intensive. And we don't think of that as capital intensive in a negative way because we're taking that into account in our underwriting and what we'll pay for that. But there's also some real benefits that get created by having it be a little bit more capital intensive. There's higher barriers to entry. There's an underlying floor value. Typically, those real estate heavy investments are more financeable.

49:36They're more tax efficient. So that's a real positive on the real estate side. They're a natural inflation hedge. And then you balance that with, say, 20 or 30 % of the portfolio that has more of a growthy consumer profile that may be less capital intensive, but that adds some extra alpha too. But there's probably a bigger range of investment outcomes. If you get that wrong, you don't have that safety net to fall back on as when you have a large resort hotel. What are some of the things that you're able to do being the scale player in this space that maybe you weren't earlier on as you were building up KSL?

50:09Well, I mentioned earlier the proprietary deal flow. It's really been transformative. The other thing I would say is our ability to get financing. During a hard financing market, we didn't have one for the last 10 years, but now we do. And we don't have a real issue getting financing today. It's more expensive, but we can get the financing we need for deals today. We can get our refinancings done. We're not particularly stressed about those things. When banks have to tighten up on their lending requirements and reduce their balance sheets to our sector, we're going to be at or near the top of the list of who they're going to lend to.

50:39And I think that's a logical reaction for banks to have to tighten in a market like this. But net-net, we become a winner because other more marginal competitors aren't able to get financing as easily. That's certainly one thing that's different today than it would have been when we got started because that was an advantage we lost. When we were part of KKR, we could always get financing. Then we were independent and small and it was a bit harder, but the market was pretty free. But in a market like this, I think it really shines. A big part of it, I would say, is the people. The career opportunities that we can offer to people to potentially move within management or within line operations between companies is really remarkable.

51:13We have a whole number, but I'd love to see us have more and more stories of people who they started in our golf business, they moved to our restaurant business, they then moved to the hotel business. They didn't decide they wanted to have experience in Europe or Australia or Thailand or Chile, wherever it might be. So the career path, I think, is something which at the scale we have now, it's completely different. So our ability to acquire talent at the portfolio company level or at the fund level is completely different today than when we were five people in a trailer in Palm Springs, California.

51:42When you're thinking about exit strategy, you do have those assets that you want to hold a continuation fund. For those that don't fit into that for whatever reason, when you're the large player in this specialized space, how do you think about who's there to buy from you? Fundamentally, if we can take a complicated asset, if we can simplify that, stabilize it from a structural perspective, from a physical perspective, upgrade the asset, make sure it's in great condition, really show the market what it can be. What we do is we open up the universe of more passive buyers to make an investment in that business.

52:20So it could be we buy something, we transform it, and we sell it to a REIT. That's a more passive, more long-term owner. Great. That's terrific. It may be that we sell it to an individual who didn't see the opportunity in La Costa when we bought it and had to turn it around and invest half of what our purchase price was to bring it up to stuff. But the next buyer gets the benefit of a stabilized asset that they can then build off of. I think it depends on what the business is. But generally speaking, if we can do well by that asset, be a good caretaker of it and innovator of it during our period of ownership, these are very desirable underlying businesses.

52:53There's no shortage of people who would love to own it. and we can broaden that universe if we do our job right. And if you broaden the buyer universe, inevitably what that means is you can then get a more attractive price for it. As we've talked about different aspects of this, maybe in this business relative to others, it feels like there's an important broad base of constituents. You've mentioned having great management teams, the importance of the customer experience. Obviously, you're trying to generate returns. There's also a community like in the situation with the club. How do you think about balancing those interests?

53:23It really is a four-legged stool. It's the employees, it's our guests or our customers, it's the local community in which you operate, and then it's our investors. I think we're really good at building great businesses, building great teams, being a good partner of communities, delivering a great experience for the guest or the customer. And in doing that, our investors will do well. I think over 30 years, that's been the case. And I think my hope is over the next 30 years, that will be every bit the case, if not more so. But it's hard. And no doubt, there are employees, there are customers, and there are community members who would think that that's crazy.

53:57We're not doing a very good job of that in places. We literally probably have hundreds of thousands of guest interactions on any given day across the world. We cannot get them all right. And community interactions. We have to be willing to admit mistakes and fix things when they go wrong. And if we're really good at that, in addition to the other things, then it all works pretty well. What are some of the strategies you've found that your management teams to deploy to help manage those challenging moments or experiences that your guests are having? Empowerment. It's really about empowerment. A lot of the conversations we have, a lot of the frustrations we have are about how much do you centralize and dictate from above versus how much you empower people to solve problems from their own seat.

54:37That's empowering the CEO of one of our portfolio companies. It's also, it's empowering the pool attendant at the pool to solve the crowding issue on the pool that day, where the person who reserved a cabana and then it wasn't available when they got there. It goes up and down the chain. But I think empowerment, while very inefficient to empower all your people to make individual decisions, because at times you can feel it's like a box of chocolates, you don't know what you're going to get all the time, that leads to the best long-term outcomes. And I think we've evolved to that mindset. When you've had challenges in your investments, what are some examples of some things that typically go wrong in these types of investments?

55:16we're very fortunate. We've lost money twice across however many hundreds of investments we've made. The two times we've lost money, if you can create a theme, I would say is we had a very charismatic seller slash founder of a business that was staying involved. And it was a business that we didn't have as much domain expertise in going into it. We have this old saying, trust but verify. We probably trusted a little too much and verified not quite enough. And this is a saying from Mike Shannon, my co-founder, but he used to describe things as there was the Ronald Reagan and the Nancy Reagan approach to things.

55:49And the Ronald Reagan was trust but verify. And the Nancy Reagan was just say no, if you remember 1980s lexicon. Trust but verify. I think that we were probably a little bit too trusting. And with an overly charismatic leader, it can be easy to probably do that. And I think that was probably the commonality between those two things that went wrong for us. I think for others, it's what we talked about earlier, I think leverage is often the enemy. We tend to use less leverage than most than our peers by a reasonable margin. That's not been our issue. It's really been, I would say, that's what we've fallen victim to in those two cases.

56:20What's most exciting to you about the current environment over the next couple of years? What's most exciting to me, not just over the next couple of years, is this trend that people want to experience the world. Fundamentally, it's undeniable. Once you've taken care of your basic needs, food, shelter, healthcare, education, and so forth, and you get to that next level of sustainability of income and wealth and so forth, you start to want to explore. And that sense of exploration, which is undeniable, and by the way, also is not satisfied in the metaverse or through social media. If anything, when you see places online, it makes you want to go there in person even more.

56:58When you pair that with the growing trends towards more awareness of the importance of activity and health and wellness. What we've seen in the last 60 years of just ongoing growth in travel, as there's been more wealth in the world, I think that's only going to accelerate. So that gets me most excited. What I really like about the next two years is the combination of what I just said with interest rates being as high as they are. Unfortunately, it will cause unintended consequence and problems with people's balance sheets becoming upside down. And we have the capital, we can invest, and we're talking about equity investments a lot here, but we also have debt capital and capital that's very flexible.

57:35To be able to provide a capital solution to people of upside down balance sheets, I think that's going to be an opportunity for us to partner with people to help them solve their problems. Because the last thing someone wants to do is sell an asset not at the right time. And so we can provide capital to avoid that. Or if someone does decide to sell and need to sell, and there will be that too, we have that capital, of course, to deploy. So I think the next two years, one in every 10 years, you get one of those moments where you have a dislocation. And we had it in the early 90s. We had it in the early 2000s.

58:04We had it in 07, 08. We had it in 1920. So maybe this one's coming a little bit sooner. But basically, once a decade, you get that opportunity. And those opportunities for us provide superior risk adjusted return potential. We love that. So I think in the next two years, we're going to see more of that. Where would you like to take KSL five or 10 years from now? I have had the great fortune of working with Mike Shannon, who when we set the firm up together, which we did in 05 together with a few others who came from the historic KSL Recreation, that's part of KKR, Mike had the foresight to really plan his succession well.

58:38He retired about five years ago. I hope over the next decade, say, that I'm able to be similarly thoughtful in setting the firm up for the next 20 years of growth. That to me would be one of my top goals. All right, Eric, I want to ask you a couple of closing questions. Fair enough. Boy, this one could be fun for you. What is your favorite hobby or activity outside of work and family? Some would argue that it is both work and family for me, but skiing would be probably my number one with golf increasingly coming up the priority list. And just in general, I'm a sports fan. What's your biggest investment pet peeve?

59:13We have a page in every one of our investment decks. I'm sure every firm has some version of this. They have one page that shows all the pros, all the investment opportunities, and then one that shows the risks. and next to the risk, there's always mitigants. And it's almost like every risk always has a mitigate and not accepting that the reality is some risks are actually just risks. There's no mitigate. You can't generate 15, 20 % returns without actually taking risks. So not every risk is mitigated. Some aren't and they can go wrong. That to me, I think is a pet peeve. I realize why we tend to do it that way, but I think that's overdone.

59:48What mistake have you made that you'd never make again? We talked a bit about it earlier, but I think it's not verifying enough when you're in a very charismatic founder situation. We've had some situations, by the way, that have gone very well with very charismatic founders. But when it's a little bit outside of our domain expertise in particular, I think we were a bit more exposed. I would never want to do that again. I want to be very careful. Which two people have had the biggest impact on your professional life? Mike Shannon and a fellow named Steve Benedict. Steve was a Hungarian refugee when the Soviets came into Hungary in the mid-50s.

1:00:21He escaped and he came to Washington, D.C. or the suburbs and started up a sports camp. He had been an Olympic coach for the modern pentathlon. And he started up a sports camp in that vein, horseback riding, swimming, running, all sorts of team sports. And I went there for a dozen years and I was a counselor there for about five. He was Eastern European, strict mindset. I think it was probably 10 years before he paid his first compliment to me, but he really engendered an ambition, a work ethic, and an understanding of if you work hard at something, you can achieve it. And he passed away a number of years ago, but he had a tremendous impact on me.

1:01:00In addition, of course, to a lot of other people on the way, but I'd say Mike and Steve. What was the best advice you ever received? It was from Terry Williams and McKinsey. They combined vocation with that vocation, no doubt. What teaching from your parents has most stayed with you? Do things the right way. Meaning it wasn't about the grade. It was about learning. It wasn't about going after some brass ring as an end that justified the means at all. It was about being a good person, prioritizing the right things and never losing sight of family being most important. And I hope that as I've gone through my career, I've done that.

1:01:39All right, Eric, last one. What life lesson have you learned that you wish you knew a lot earlier in life. I just turned 50 this year and I feel things seem to break on a, it's like an old car that things just start to break and you have to get a new this, that, or the other thing. I think it'd be to focus on your health, your fitness, your diet before you actually have to. Back when you think you're invincible, you're in your twenties, your thirties, get that lesson, get that religion earlier. Some have been better at that certainly than me and And hopefully I'm playing catch up in a good way.

1:02:11Eric, thanks so much for sharing this really fun story about this sector we all know and love. Thank you, Ted. A lot of fun being with you. Really appreciate it. Thanks for listening to the show. If you like what you heard, hop on our website at capitalallocators.com, where you can access past shows, join our mailing list, and sign up for premium content. Have a good one and see you next time.