Stomp Capital: STR Private Equity Fund | Stomp Capital

Investment Approach

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Portfolio Construction

We are a commingled fund, Not singular assets

Portfolio construction is the lens through which we view the world

A fundamental belief at Stomp Capital is that vacancy risk is mispriced in the market today. By taking vacancy risk, short-term rentals are able to generate 2-3x the revenue of long-term rentals in the same market. The tradeoff is those cash flows are often inconsistent - seasonality being the most obvious factor impacting cash flows, particularly in vacation markets.

To address this, we are building a portfolio of short-term rentals diversified across many different aspects, including seasonality, geography, client type, activity/attraction, etc. Through portfolio construction, we seek to smooth out the “chunkiness” of cash flows at the portfolio level by owning a variety of assets that peak in different parts of the year.

In doing this, we seek to synthetically replicate the consistency of cash flows of a multifamily portfolio, with 2-3x the upside.

Portfolio Snapshot

125+ Keys Across 5 Markets

$50mn+ in Portfolio Market Value*

$4mn+ in Revenue Generated*

Diversified Strategies

*As of 9/30/2022 across all sponsor-backed vehicles

Short-Term Rental Zoning

We invest in short-term rentals, Not Airbnbs

Zoning determines the envelope through which we enter a market

For many of us, Airbnb is synonymous with short-term rentals. While convenient, we believe that’s a limiting view, as most Airbnbs are single-family homes that have been converted or made available for short-term use. We have not, and do not intend to, purchase existing single-family homes and convert them to short-term rentals.

When we look to enter a market, we first analyze the regulatory environment because we aim to mitigate regulatory risk as much as possible. For example, if short-term rentals are legal (regulation exists, revenues taxed, and communities aligned), we’ll purpose-build short-term rental communities; if short-term rentals are illegal, we’ll go upstream and purchase hotel zoning where we know our use case is allowed.

From an operating model perspective, we believe operating a 14-key boutique hotel can look very similar to operating a 14-bedroom home, like our flagship property in the Outer Banks. Our goal is to deliver the best of a boutique hotel (services, quality standards) and short-term rentals (privacy, flexibility) while eliminating the worst. The result is an elevated vacation rental experience layering curated, a la carte experiences on top of thoughtfully designed spaces in inspiring locations.

“The value of experiences over things is set to grow. Consumers are looking more for ‘meaning’ in what they do: possessions are proving less meaningful than experiences, and the memories and learnings they gain from them. Tomorrow’s consumer, citizen and employee will increasingly look for fulfillment from the experiences they have, share and remember. In the future, what we do will matter more — to us and our peer network.”

- Will Higham, Consumer Futurist, Next Big Thing

How We Manufacture Alpha

We are active management, Not passive investors in turnkey properties

We are a vertically integrated real estate private equity firm that owns, operates, and develops all of our properties.

We purchase land, zoning rights, and other value-added opportunities where we get ‘paid’ to do the work. We employ many different skill sets in order to generate the highest possible risk-adjusted returns. These experience-based strategies are not for the faint of heart and therefore have much less competition and higher returns versus straightforward real estate investing.

Pamlico Station was a struggling retail property we are converting into fourteen ~750 sq ft 1-bedroom short-term rental units. We purchased the asset for less than the replacement cost, changed zoning laws to allow for short-term rentals, and received approval to add an additional sixteen units of workforce housing on the lot.

When possible, we secure the first look at unique properties that aren’t actually for sale. Our Outer Banks and Nosara properties are prime examples. In many instances, we’re able to buy at extremely attractive valuations — in part because of Richard’s brand and visibility in the STR arena.

We’re securing our future by buying land in key, forward-thinking locations at attractive valuations. When Stomp owns the land, we can develop for years to come.

Like a tap, we can dial things up when it’s a good time to develop or slow things down when it’s not an ideal environment.

Our team has extensive ground-up development experience, which we lean on to develop purpose-built short-term rentals.

Ways in which we develop properties to short-term rent include multiple flexible living areas, en-suite bathrooms, commercial kitchens, and other more targeted amenities. Since we target a narrow niche audience, we know who they are and what they like — and we use this information to customize our homes.

For example, at Edgecamp Social Club in the Outer Banks, we built our own private deck to launch directly into the sound, every room has an external locker for storing kiting gear, and we have multiple outdoor showers to welcome kiters back after a day of adventure.

We’re securing our future by buying land in key, forward-thinking locations at attractive valuations. When Stomp owns the land, we can develop for years to come.

Like a tap, we can dial things up when it’s a good time to develop or slow things down when it’s not an ideal environment.

We seek out deals where others aren’t looking. We avoid crowded markets and bidding wars, instead focusing on value-added opportunities.

We have even worked with local governments to change zoning/ordinance laws to allow short-term rental uses.

In short, we buy inexpensive assets and redevelop them to their best short-term rental use, monetizing that upside.

We routinely purchase assets that require modernization and improved efficiency. Investing upfront provides a long, trouble-free runway with greater guest enjoyment and less maintenance expenses going forward.

Our understanding of consumer preferences allows us to position the portfolio accordingly. Creating bespoke, custom experiences for our guests develops lasting relationships, repeat business, word-of-mouth marketing, and referrals.

We don’t simply list our properties on Airbnb and click ‘accept.’ We manufacture a desired guest profile and provide experiences they can’t replicate elsewhere.

We attract our ideal audience through marketing, branding, and messaging. We screen prospective guests carefully to ensure a good fit, and we’re capable of saying ‘no’ and leaving our calendar open for the proper guests.

Guest selection is a competitive advantage.

Megatrends We Are Monetizing

We are driven by a top-down view of the world, Not bottom-up analysis

As a result, we identify themes or megatrends representing secular shifts that will influence how we live, work, and travel for years to come. These trends impact our decision-making today to position our forward-looking portfolio for tomorrow. In simple terms, we skate to where the puck is going, not where it has been.

With that backdrop, we wanted to share a few megatrends we are monetizing today. In our view, these changing consumer preferences may soon be the ‘norm,’ as opposed to the exception, in a generation or two:

Experiences Luxury

Hardly the first to identify this trend, experiential hospitality has been talked about in hospitality circles for years. This said, it is one of the strongest trends in the marketplace today, accelerated by the COVID-19 pandemic that starved us of new experiences. We firmly believe consumers will continue to put a premium on experiences, and we tailor our locations and a-la-carte amenities to emphasize unforgettable experiences. This preference is a guiding principle for our approach.

Community Anonymous

Another core tenet at Stomp is that people want to be part of something beyond themselves. Similarly accelerated by the pandemic, we believe consumers will prioritize community-building and shared experiences over anonymity and ubiquity. Therefore, we intentionally design our properties to foster community on-site through physical gathering spaces and in the local communities through curated experiences.

Inspired Consistent

When was the last time you heard someone rave about how consistent their stay was? Gone are the days of cookie-cutter hospitality, where the greatest difference between the Holiday Inn in Shanghai and the Holiday Inn in Des Moines, Iowa, is the view. While consistency in execution is table stakes, consistency in design and experience is boring. We look to the world around us for inspiration to create a distinct sense of place on each property and deliver uniquely local experiences.

Unique Generic

While this trend has wide-ranging implications for various industries, we believe this is particularly relevant for short-term rentals (STRs). Richard coined the term STR 3.0 as the next evolution in the short-term rental market beyond the availability of lodging (STR 2.0). STR 3.0 is the creation of custom-built, one-of-one short-term rentals in unique locations that inspire creative energy, get people excited, and create stronger relationships with people around them. That is what we do.

Work-from-anywhere Offices

Perhaps the most noticeable trend the pandemic accelerated is one we’ve been practicing for years. Employers are starting to realize the benefit of hiring talent over proximity and are offering remote work as an edge in the war for talent. That said, we can all agree there is no substitute for in-person interaction. So, many firms are turning to short-term rentals for weeks or months-long offsites to drive team building. In fact, 2021 was the first year venture-backed startups in the US spent more on Airbnbs than office rent.

Flexibility Certainty

In the past, lessors desired longer-term leases to provide certainty. For example, an individual might want a 12-month lease to amortize the cost of broker fees or the hassle of moving. Freed from office spaces, we believe a growing percentage of people might think 12 months in the same place is too long and instead want the flexibility to roam, follow the seasons, sporting conditions, etc. Here we see great opportunity for medium-term stays (1-11 months), which is why we design our spaces to be comfortable for a week getaway or months-long retreat.

Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. While the data we use from third parties is believed to be reliable, we cannot ensure the accuracy or completeness of data provided by investors or other third parties. Neither Stomp Capital nor any of its affiliates provide tax advice and do not represent in any manner.
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