WRITTEN BY DANIEL HILPERT, PUBLISHER AND EDITOR-IN-CHIEF
Location is everything. So when an ordinary 1950s motel with enviable views of the ocean became available just outside Montauk, hospitality investors Jon Krasner and Teddy Wasserman immediately recognized a lucrative opportunity. With Equicap’s assistance, they obtained financing and purchased the property.
Rebranded as the Hero Beach Club, they created a beachside oasis with a sprawling lawn for barbecues, a private pool and access to Umbrella Beach. The updated guest rooms combine modern and rustic elements with handmade accents imported from Bali. In our Q&A, Daniel Hilpert of Equicap shares details of the deal.
What was the client’s motivation for buying this particular hotel?
Our clients are experienced hospitality guys and saw this as a profitable investment due to its large potential upside. The property was an old Montauk motel that had not been renovated since the 1980s. It had a lot of character, but it was underutilized and needed a face lift. For those that know the area, it was the Oceanside Hotel on Montauk Highway. The property is very well located, has high visibility and direct access to the beach. Our clients have owned a dozen properties in the Hamptons, mainly in Montauk and Sag Harbor. The group is very knowledgeable and knows what it takes to turn a hotel around and run a food and beverage operation. They were a natural fit for this. Another factor was that the seller, a long-time owner, was looking to retire and exchange the proceeds into investment properties.
How extensive was the renovation plan?
Our clients closed on the purchase at the end of the season and immediately started a renovation program including some façade work and the renovation of guest rooms and common areas. As developers, they did an amazing job creating a lobby and common area for hotel guests that is more communal and in line with what a younger crowd is looking for. A lot of work was put into the common areas—the courtyard facing the beach formed by the two main buildings. Now known as The Backyard, the courtyard is used to its full potential and is finished with art and outdoor furniture that give it a sophisticated Montauk meets South Beach vibe.
How did you obtain financing for the property when there was a large revenue gap between the current income and your clients’ projected income?
We structured an acquisition and renovation loan from a New York-based bank. After our presentation, the lender understood the business plan and saw the developer’s vision. The old motel had operating numbers that did not justify the purchase price and cost of renovation. The lender’s faith was not misplaced—our client executed their timeline, finished construction and met all projections in the first season following the purchase.
There are many hotels in Montauk. How has the client positioned this property to be different from all the others?
The hotel has a unique location at the entrance to Montauk and is beach adjacent. Since the hotel has no immediate neighbors, the beach tends to give the impression of a private beach. The developer’s team has done an amazing job renovating the rooms and common areas. It’s a very successful, timeless design with a lot of open areas and ocean views.
What was your most interesting take-away from this deal?
This was not our first deal in the Hamptons. We have a long and successful history of arranging financing in the area dating back to 2005. We arranged financing for two condominium developments in Sag Harbor and we arranged the acquisition and renovation loan for Baron’s Cove Hotel in Sag Harbor before the current owner took over. We have also been involved in numerous residential construction loans. We know the market well. Our success at Hero Beach has given us more assignments and we continue to be very active in the Hamptons. We learned a lot about seasonal markets, and seasonal hotels such as this one have certain challenges when it comes to finding the right bucket of capital. Not every lender understands the business model. We have taken this knowledge to other markets outside the Hamptons where we are active in arranging hotel construction financing.