#31 Wander: Tech-Enabled Short Term Rentals with John Andrew Entwistle
Philippe I.
0xC190
Jackson Steger
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prodcolin
0x2d86
February 9th, 2023

Transcript:

[00:00:00] Jackson Steger: Hey there, you're listening to Campfire, a podcast where we interview leaders that are building new cities and other new models of living for digital nomads, creators, and remote workers. My name is Jackson Steger and I work with Cabin to develop new neighborhoods and grow a community of nature loving creators and builders.

[00:00:17] Today's interview features John Andrew Entwistle, Founder and CEO of Wander. Wander is building a network of beautiful, smart homes across the globe that guests can access the tap of a button. Our conversation today answers the question, how can you find, develop, and scale beautiful properties that have a high quality bar for temporary guests?

[00:00:36] Campfire is produced by Cabin, which is building a new kind of city for creators called a network city. Our community is developing a global co-living network of physical locations that we call neighborhoods. If you wanna live in those neighborhoods or create cool things near nature with other thoughtful people nearby, you can learn more about us by visiting cabin.city.

[00:00:55] John Andrew Entwistle, welcome to Campfire. 

[00:00:58] John Andrew Entwistle: Thanks so much for having me. I'm super stoked to be here. 

[00:01:01] Jackson Steger: We're stoked to have you. I'm a Wander founding member. I've been following y'all since, I think, your public launch, so really excited to have you on the show and hopefully stay at a Wander one day. Wanna talk just first about what Wander is and who it's for. 

[00:01:17] John Andrew Entwistle: Yeah, so the big idea with Wander is to effectively verticalize the short term rental space. So right now, when you go and book a vacation rental, there are a bunch of different players, right? You have Airbnb and VRBO as your booking platform. Underneath that, you have the property manager, and underneath that you have the actual property owner.

[00:01:37] And what that leads to is a really fragmented experience. I think a lot of your listeners have probably booked one of these places and it didn't look like the photos, the guest experience wasn't great, et cetera. And so, the big idea with Wander is if you can verticalize that, if you can control everything from the booking platform, to the home management, to the actual underlying asset, that you can create this really incredible experience for guests where they know what they're getting. And then of course, offer a lot of cool tooling as well. So being able to turn on and off the lights right through your phone or access the Tesla in the garage, or making sure that you have incredible WiFi, all these really cool things. 

[00:02:11] Jackson Steger: And who is it for specifically? Because there's a lot of people out there who will do an Airbnb for a night with their friends, or maybe some people use it as an alternative to rent for a whole month. I've done that. Is this for just anyone who might use Airbnb, or is there a more specific persona that, at least in the early days, you're focusing on?

[00:02:31] John Andrew Entwistle: To start with we’re starting with shorter term stays, and the product is more expensive, so we do have some folks who rent for longer periods of time, but that's not super accessible to most people unless you're splitting with a larger group. Eventually though, we will migrate into longer term stays and different GOs, but the key there is that we want to provide an incredible experience, which means that in order to do so at a lower price point, you effectively need to expand into areas where you can support that. So, think Mexico, Bali, those types of places, as opposed to lowering our quality standard just to hit a certain price point. 

[00:03:08] Jackson Steger: I look at the images you have of Wander Platforms, and I see these beautiful works stations and these vistas that I could record this podcast from.

[00:03:17] And I'm curious how possible is what Wander's trying to be now in 2023 versus pre remote work exploding during the pandemic?

[00:03:27] John Andrew Entwistle: Yeah. So, we're having our biggest month yet, which is always a good thing to say as a startup founder. Very lucky. And I think that really comes down to the fact that Wander can be used by anyone. You have digital nomads. You have just people looking to get away for a few days with their friends. You have honeymooners. You have families. You have all these different people using the product for really whatever they want to use it for, and I think that's really the main advantage for Wanderers, that we're going after such a large general travel market while making sure that the product can be used by digital nomads in the same way that it can be used by family looking to get away for a few days.

[00:04:03] Jackson Steger: Sure. At Cabin, which is the organization that produces this podcast, we're building neighborhoods that have nature out the front door for remote workers and for creators alike. And we're being very thoughtful about the expansion. We currently have three neighborhoods and we're working on bringing some more in, but we're in no rush necessarily.

[00:04:23] We all want to compromise like our ethos of having these large, mostly rural spaces, usually within an hour or so of an airport. We're very particular about choosing those next places, and I'm curious how you've thought about identifying places that would be good Wander locations. Like is that a data-driven process or do you have a community that informs how you think about that? Just curious, the sequencing of properties, how you made those decisions. 

[00:04:49] John Andrew Entwistle: Yeah, so obviously when you're doing like any type of real estate investing, you want to leverage data to make sure you don't miss, and fortunately in this industry, you have all types of data in terms of seasonality, geographic density, occupancy rates of nearby hotels or short-term rentals or all these different things.

[00:05:10] And so, what you end up creating is basically a bunch of guardrails around the places that you purchase. For us, we obviously leverage all this data to identify what areas make sense, but very similar to you all, it's hypercritical that the experience is wonderful and inspiring and exciting. And so, we like to say that the data and the underwriting and that whole process are really the guardrails. Obviously, we can't purchase outside of that, but we also need to check the box of the guest experience as well. 

[00:05:41] Jackson Steger: Yeah. You mentioned Mexico and Bali and, and I know you're in The Bahamas right now, but I'm curious, when will you really make that global push versus domestic, and what are the milestones do you need to hit in order for you all to do that? Or is it already happening? 

[00:05:57] John Andrew Entwistle: Yeah, so it'll happen this year. Towards the end of this year, I'm very set on planting our first international flag. Now the question of where is a big question. Obviously we could do something in North America. We could plant a flag in Europe. Iceland is actually, I think, a perfect in between three hours from New York.

[00:06:15] Absolutely a magical place to go and explore. So, we'll see where we end up planting that flag. It's certainly gonna happen this year, and I think once you do the first, then obviously you can go much further, much faster. 

[00:06:28] Jackson Steger: And assume you own these properties. Is that true? 

[00:06:31] John Andrew Entwistle: Yeah, that's correct. 

[00:06:33] Jackson Steger: And so, how did you wind up financing them?

[00:06:35] So the question of capital markets and like financing single family assets, it's very large and complicated. I could probably spend an hour walking through the different steps and process. But essentially, what you start off with is basically one-off financing. So one-off financing for each individual asset, and then your next step is basically lumping them all together into some type of larger facility.

[00:06:57] So, we just announced that we closed this hundred million dollar credit facility from Credit Suisse, which is very, very challenging to do and really requires the company to be institutional grade in every way. And that sort of allows us, basically, to go out and buy properties that are within a certain buy box and have that basically pre-approved as long as we check those criteria.

[00:07:17] So that's the step. You start off with one-off financing and then you move into a larger facility. And then, Wander is very fortunate that obviously working with a large institutional bank is the ultimate goal of that. And then you can go even further with long-term fixed financing from like some insurance company or whatever that looks like. But it's a pretty typical step in terms of assets. 

[00:07:40] Jackson Steger: Curious how you learned that? I know you're a Thiel Fellow, right? And so curious, like how have you been educating yourself just on this space, on the range of financing options available to you or companies like yours.

[00:07:53] John Andrew Entwistle: Yeah, the short answer is that I'm an obsessive learner.

[00:07:57] My sister just bought me a Kindle because my bookshelf started to turn into like chaos. My room is just stacked and stacked, and so anytime that I am thinking about an idea or a problem, I ask all types of questions and those questions then turn into even more questions, because obviously that's how it goes from a research perspective.

[00:08:16] And what ends up happening is that you look for those answers those answers and you end up building a pretty broad understanding of the space. But then what you want to do is you want to validate those answers with some type of industry expert to make sure that what you're reading or understanding isn’t outdated, and more specifically that the assumptions that you're creating based on those materials, especially if you're an original thinker, is actually correct and not super naive. And so, from there we were very fortunate to build a pretty incredible group of advisors from Open Door and otherwise, and obviously hire our own internal team with decades of experience. So that all really starts from having a broad understanding of the space, narrowing it down, validating your original ideas, and then using that knowledge to make sure the people you hire aren't actually sort of useless, if that makes sense.

[00:09:06] You need to know enough about the space that you're hiring in before you go and hire someone.  

[00:09:12] Jackson Steger: Sure. Getting the hundred million credit line from Credit Suisse. Yes. Last night I was reading Selina’s 2022 investor report, and they similarly have, I think, 350 million ready to deploy over the next two years to try to triple their beds and inventory.

[00:09:32] I'm curious, how do you build that relationship with large capital partners? What do they wanna see? Especially when you’re relatively new player on the scene. 

[00:09:40] John Andrew Entwistle: Yeah. So, the first thing that they're looking for is really the quality of team and the quality of your investors. So, there's no way that Wander would've been able to land this facility if we hadn't received backing from QED and Red Point and those types of names, which is also a decision that you have to make as a founder as well.

[00:09:59] We had firms that were more interested or willing to pay more, but at the end of the day, I felt like they weren't going to create that value. And so that's something that you really need to be mindful of, especially in this space. You know, from there, really they're looking for how you run your business, right?

[00:10:14] Are the assets performing? What internal processes are there? Is this a serious company, and are they able to support this type of facility? It comes with audited financials and monthly reporting and all these different things, and so it's a very complicated process to support, and so can this company afford to support it?

[00:10:35] Can they actually run the process? Is the leadership team dedicated to doing so? And then obviously, are the assets performing? Can they support this interest rate? Is it an asset that they want to actually finance? Which the short term rentals is really single family homes. And so that's where the advantage is.

[00:10:51] You're tying into that infrastructure. Once you check all those boxes, then you start the long diligence and negotiation process. And there are a handful of obviously, different operators that you need to go and, and talk to. Basically, the big banks. And yeah, you run a process from there. Takes anywhere from four to six months and a whole bunch of legal fees and thousands and thousands of pages of criteria and policies and contracts and all that sort of stuff.

[00:11:18] But at the end of it, obviously you end up with a, something that allows your company to grow much faster, and also something that candidly forces your company's maturity far further into the future. Wander is an 18 month old company, give or take, and we have the operational maturity a pre IPO organization, which is also super important, right?

[00:11:39] Anytime you're dealing with a real estate or otherwise, like having that maturity is hypercritical. 

[00:11:45] Jackson Steger: You’ve alluded twice now to this set of advantages that one gets when working with single family homes. Could you elaborate on what those are? 

[00:11:50] John Andrew Entwistle: Yes. Whenever you're dealing with a new asset category, you have to think about what are the adjacencies, or what adjacent asset categories, are there that have existing infrastructure. So. I'll give like examples on two opposite ends. So, let's talk about like wine investing, right? Wine as an asset category is relatively small, and there are some incredible companies that go and invest like Vinovest and others, but it's a relatively small asset category, and so it's difficult to get institutional investment or institutional lending or more difficult.

[00:12:24] And to be clear, again, a company like Vinovest is in a different category. But then you look at single family rentals, right? Long-term rentals, and you're looking at literally hundreds of billions of dollars of equity investment from massive hedge funds. You're looking at trillions of dollars of lending infrastructure because everyone wants to go and buy a home.

[00:12:45] And so when you make the leap into short-term rentals, effectively what you're doing is taking the same underlying asset and putting a different business model on it. And so it’s much easier for a large institutional bank to go and look at that and say, okay, this is something that I can fund. Or an investor can say, this is something that I can invest in because it's a very stable or more stable underlying asset that's now generating a much higher yield.

[00:13:10] And so, that's sort of what I mean when I talk about the advantages of single family homes as a wedge into the hospitality space. 

[00:13:18] Jackson Steger: Awesome. Appreciate that context. So, we've talked about the financing, the financing a little bit. Let's say you choose a new location, for example, somewhere in the Ozarks in Missouri, and you decide, oh, there's a lot of people in Kansas City and St. Louis who we might be able to track for a weekend trip. But what kind of renovations are typically needed for you all to do? What process do you have in place to ensure that you have that quality threshold met across all of your properties? 

[00:13:49] John Andrew Entwistle: Yeah, so obviously you need to be extremely thoughtful about your CapEx whenever you're going into a new location, and make sure that you're taking that into consideration: your underwriting. So, once you've modeled that out, let's say that place in the Ozarks we were looking at and we said, okay, it's gonna be, let's say, 200,000 in CapEx. From there, within Wander, that process is pretty sophisticated. So, it's basically 3D renders of absolutely everything and price estimates for each piece within that render, along with within those renders all of the furniture and otherwise all being budgeted

[00:14:25] And really, automatically procured. So, once we start that process, everything gets distributed to a central repository. That central repository will then go and basically install everything in a pretty short period of time. So, if the home doesn't need much renovation, it'll take us about two weeks, give or take.

[00:14:41] If it needs more, obviously it can take a bit longer, but because of the time is not your friend. As a startup, we try and keep that pretty short. And from a quality management perspective, the fact that we're basically centrally like simulating the space, and that has to be approved and is being done by that same team, you get this level of quality and consistency across the portfolio, which is also hyper unique, and nice for customers as well to know that regardless of which house you go to, it's gonna be solid. 

[00:15:10] Jackson Steger: Two weeks is really fast. That's really impressive. I wanna ask about Atlas. You recently launched product called Atlas. Can you tell the audience what Atlas is and who's eligible? 

[00:15:20] John Andrew Entwistle: Yeah. So, the idea with Atlas is really to blur the line between this idea of customer and owner. So, when you think about while we're building with Wander, finance is obviously the other side of real estate. And you need to supply some amount of equity to go and to continue to scale that portfolio.

[00:15:37] And so that equity can come from either a real estate private equity firm, or it can come from individuals can come from a family office, can really come from wherever. For us, I saw this opportunity to create this really wonderful community experience around this idea that you can actually own a piece of this network that you're staying in and benefit from those same returns that those large institutional investors are capturing.

[00:16:01] So Wander Atlas is basically that vision coming to life. So, it's launching as basically the first vacation rental, which I can go into the process of creating a REIT that is very painful. 

[00:16:14] Jackson Steger: Please do. I’d be curious. 

[00:16:15] Yeah, REIT's the, I guess I'll start with what a REIT is, right. So, REIT is a stands for Real Estate Investment Trust, and it's essentially a designation by the SEC and the IRF that allows for certain advantages for investors. So, you get to deduct a certain amount of the income, and it also comes with certain rules for that company, right? So, a REIT has to own 90% of what it owns has to be real estate. It has to distribute 90% of its income back to shareholders. So, there are a lot of these like forcing functions, which keeps the REIT honest.

[00:16:47] And then obviously there's a bunch of reporting requirements as well, audited financials and all these different things. And so, like when I went through the space of alternative investments, like I was pretty horrified to see the underlying financials of a lot of these products, right? You see, the vast majority just go out in fees.

[00:17:06] So you know, you can buy a share of, you know, let's say a fractional home on one of these other platforms, and you put in $5 and you get $2 of real estate. It doesn't make any sense. And so, I knew that from a quality perspective and in terms of protecting our users, I wanted it to be structured as a REIT. Next you go into this problem set of, okay, yes, there are adjacencies when you think about hotels or single family homes, but no one's done this for vacation rentals yet.

[00:17:33] And so what that led to was a pretty in-depth process with our lawyers and accountants and other accountants and other lawyers, and this really big exercise to basically create a new financial product that again, frankly like just hasn't been done before, but is being done in a way that the IRS and SEC is like, yes, this is good to go.

[00:17:55] So that process was pretty intense. Again, I think the PPM alone is like 160 pages. The contracts are thousands and thousands of pages of legal documents, and there's all types of, again, auditing requirements and otherwise that Wander has third party fund administrators, all these different things. But what it means is that for investors, it is truly the most efficient way to invest and own a piece of not just, obviously, Wander’s portfolio, which I think is certainly special, but vacation rentals generally, and the returns that we're able to generate candidly, are going to be higher than if you were just gonna go and buy some in Airbnb and try and operate it yourself, which I think is like the special piece. Over time, what you're gonna see us do, is merge the concept within the ecosystem.

[00:18:43] So right now it's a little separate, but over time you'll see it come into the app and you can imagine going and staying at a wander and saying, Hey, you've earned $500 into Atlas, and oh, that money has been deposited for your monthly dividend, or quarterly dividend has been deposited in share credits.

[00:18:57] You can use that within Wander’s platform or you can pull it out. And you have this really cool sense of belonging and ownership and this idea where candidly, if, I think if you put, obviously it would be a decent amount of money, but let's say instead of buying a house, you put all that money into Atlas and like those dividends were then allowing you to spend X amount of time on the platform.

[00:19:19] It becomes like a pretty beautiful thing when you think about, rather than buying a second home, I'm just gonna stick all that money into Atlas and then those credits go right into my Wander account and I can use it as cash, or I can use it on the platform, and I can live anywhere. So that's the future that I'm really excited for.

[00:19:35] But there's a lot of steps in between, and so we're measuring twice, cutting once. And then what that also allows, that I'm pretty excited about, is that it means that individuals get to invest alongside these massive firms. Wander could just go and accept, uh, 200 million check from a big hedge fund, which obviously we will be raising institutional capital for Atlas, and the interest around that has been really incredible, but it was important to me that the community could own a piece of it as well to keep us responsible as a company, as we scale

[00:20:05] Jackson Steger: Yeah, that's really exciting. And future state you describe is, if done right, would be really meaningful. This word community gets tossed around a lot by a lot of different organizations, not just in this space, but every space these days it seems. Like, how do you engage a Wander community in this stage, and how do you build it towards this place where people can, what, like all those steps in between that you described? What are those in terms of community? 

[00:20:30] John Andrew Entwistle: Yeah. So, I have a relatively contrarian perspective on community. I, I think it's because, like I grew up as an internet kid.

[00:20:39] Like I was a part of all these different Skype groups and everything else, like playing different games and otherwise, and, but it never felt forced. It was like this group of people doing this thing. Basically, what you ended up really looking at was this group of people with a shared passion, who are all united through some type of common idea, some type of really life goal, right?

[00:21:02] Or whatever it may be. It's not like you can force that. A lot of companies just go and create Discord. and are like, bam, community. That's not how it works. You can't just throw a bunch of people into a Discord. or create a community Slack, and call it a day. In fact, like some of the strongest communities don't even have that infrastructure, which is the camp that I sit in, is like my thesis that community is a group of people who find an idea exciting, and if that idea is able to execute, if the company's able to execute on that idea, then what you end up creating is not just a community, but a little bit of a cult. And I think that's where things get really interesting and what you want to create from there is basically infrastructure that fosters that engagement, but not, and again, like a cringey way.

[00:21:52] So one thing we're adding with Wander is this idea of a guest book where people can talk to previous guests, say, hey, you should check out this little shop. It was absolutely amazing. Like, here are some photos, et cetera. And it's when you go and stay to Wander, you'll be able to go and read this guest book.

[00:22:08] And even though you've never met this person and you're not talking to them live, you feel this connection, and that connection is so much more real, again than 5,000 names in a Discord and X, Y, Z. And so, that's how I think about community is, have an idea that people are excited about, execute on it to form a little bit of cult, not in a bad way, like a good one, and then create some features within your product that allows for a human to human connection in a very safe and organic way.

[00:22:39] Jackson Steger: A refreshing take. Thanks for sharing. I wanna finish the Atlas conversation. On your website, you have this 8% targeted annual return. I've seen a few other much smaller scale real estate projects that kind of hover around 5%. And so, I'm curious, like how did you arrive at this 8% target annual return? Obviously, it's targeted.

[00:23:00] I'm sure you have all the disclaimer language in the world to help your investors know that you can't guarantee it necessarily, but it's an ambitious, but, albeit I would say maybe you, you perceive it as doable target. How did you get there?

[00:23:14] John Andrew Entwistle: Yeah, so, obviously for anyone looking at investing analysis, you should go through the PPM and all that sort of stuff.

[00:23:22] With that being said, that's based on our historical operating history, so that's not based on any type of like wishy washy, raise your hand in the air and see which way the wind is blowing. That's based off of our conservative base case from our historical operating, and actually, and again, review the disclosures, et cetera, we’ve overperformed that in in certain respects and that's, when you go through the process of forming a REIT and going through this process with our accountants and lawyers and otherwise. We're also not the only people who can make that justification. Everything has to go through our accountants and auditors and what we can say.

[00:24:03] Every single claim that you see with Atlas hasn't just been double checked by our own internal investment team, but it's literally reviewed with scrutiny from one of the big three accounting firms, which you can see their logo in the PPM, and they're basically verifications of everything and obviously also our lawyers as well.

[00:24:22] So, that 8% return, it is a really attractive investment, and candidly, that's one of the benefits of short-term rentals. You have a relatively stable underlying asset, which if you do the math on base occupancy rates, and then the ADR for these properties, it's an attractive return versus a long-term rental, which may be operating at, let's say 3, 4, 5% return a year.

[00:24:47] Short-term rentals are typically operating a little higher. Now, to be clear, I don't think that the short term rental industry as a whole is going to enjoy returns that high because, at the end of the day, you'll need to have an incredible asset. You can't have a bunch of cookie cutter homes in Arizona and expect it to perform well.

[00:25:07] You need handpicked, underwritten, high performing assets ran by a professional operator. So, in any event, yes, the return is definitely, I think, super attractive for investors and is extremely well backed up with our performance history to date. But obviously, like I implore any potential investor to go and read the PPM and talk to our head of capital markets and all that sort of good stuff.

[00:25:31] Jackson Steger: So, really appreciate your take on the community that you're building within Atlas and within Wander. If someone wants to learn more about Wander, about Atlas, where should we send them?

[00:25:41] John Andrew Entwistle: Yeah, so obviously like before any investment, you should go and talk with your financial advisor and all that sort of fun stuff.

[00:25:48] And if you go to wander.com/atlas, you can sign up, and as you go through that flow, you'll see all the different materials, the subscription agreement, the PPM, like all your investment questions, along with a Wander team member being there to answer any questions you may have or otherwise. That's what I recommend for those of you all who are interested, it is only available right now to accredited investors, but hopefully sometime towards the end of Q2 that'll change.

[00:26:15] Jackson Steger: John, thanks so much for coming on the show. Really appreciate it, and congrats on all the success you've had with Wander. 

[00:26:20] John Andrew Entwistle: Oh, thank you so much for having me. It's been a really, really enjoyable conversation.

END OF TRANSCRIPT

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