Real Estate Entrepreneurship: VANA Partners

UpWind sat down with VANA Partners for an interview on their entrepreneurial journey. Dubi Ajukwu, Co-Managing Partner on the left, Chuchu Ajukwu, Co-Managing Partner on the right. Founded in 2022, VANA Partners is an investment platform focused on the extended stay hotel segment. In 2023, VANA entered into a partnership with Wyndham to build their new economy extended stay brand, ECHO Suites, across select cities in Florida. 

What is an extended stay hotel?

Extended-stay hotels offer long-term accommodation to guests. With amenities such as self-serve laundry and in-suite kitchens, they are a cost-effective and convenient alternative to renting a traditional apartment.

Like regular hotels, extended stay hotels range in chain scale (economy, midscale, and luxury) and service offerings. Midscale and luxury segments typically see stays of 2-7 nights. However, the economy segment averages 21+ nights of extended stay. Typical guests in the economy segment include construction crews, traveling nurses, seasonal travelers and value-conscious renters looking for transitional housing.

Wyndham’s new extended stay brand, ECHO Suites, falls within the economy segment with average daily rates expected to range between $60 and $80.

Tell us a bit about yourselves. Where are you from?

Dubi: We’re twin brothers with nearly identical backgrounds. Proud Nigerians, we spent our formative years in the UK before coming to the US to attend Dartmouth College.

What were you doing before VANA?

Dubi: Prior to founding VANA Partners in 2022 with Chuchu, I worked as a developer at The Related Companies, focusing primarily on luxury rental and condominium projects on the East Coast. Additionally, I was part of the Equinox Hotels development team.

Chuchu: I started my real estate career at Tishman Speyer, focusing on the development and asset management of commercial properties on the East Coast. Most recently, I led a $750mm real estate portfolio for a family-owned real estate investment firm in Toronto.

What’s it like working with your brother?

Dubi: Working with my brother is great as I get to be the older and wiser one! As the older twin, I’ve had a few minutes of extra life experience. But seriously, the level of trust and respect we have for each other has made working together seamless. There is no ego in our partnership; our decisions are rooted in fundamental research and analysis rather than traditional intuition-based approaches. We strive to create a culture where informed decision-making is paramount, with constant evaluation of our assumptions and processes. 

Why did you leave your jobs to pursue extended-stay hotels?

Chuchu: We discovered the economy extended stay (“EES”) hotel segment during the height of the pandemic, drawn to its resiliency through various industry cycles, including the pandemic. In 2021, the avg. occupancy rate for EES hotels was 78% - 20% higher than all segments combined. The fragmented nature of the segment makes acquisition opportunities at scale difficult, creating an opportunity to develop a portfolio of new EES assets that will command a premium cap rate and attract institutional interest. To that end, we signed a master development agreement with Wyndham to build their newly launched EES brand, ECHO Suites, across select markets in Florida.

We also found the risk-reward profile very attractive. EES hotels sit at the nexus between multifamily and hospitality, merging the beneficial aspects of both asset classes. In other words, you’re able to develop to hospitality yields but the operating performance reflects favorable multifamily characteristics: high occupancy (driven by longer lengths of stay) and higher NOI margins than other hotel types due to limited services and amenities

Transferability of your skillset and Wyndham partnership?

Dubi: Our multifamily experience makes us more amenable to the extended stay operating model, where the key to success and achieving high margins is driving occupancy and length of stay rather than maximizing average daily rates (ADR) which results in shorter stays. This approach can be challenging for conventional hoteliers and operators who manage transient hotels. Additionally, our institutional backgrounds allow us to bring a sophisticated approach to a segment often dominated by non-real estate professionals. We have rigorous underwriting standards and take a disciplined approach to the development process.

We’ve thoroughly enjoyed working with Wyndham and have seen first-hand their developer-friendly orientation. In creating ECHO Suites, they took a deliberate approach by enlisting the help of EES experts to create a prototype that is ROI-driven for owners but thoughtfully designed for the value-oriented guest.

What have been some of your biggest wins since launching?

Dubi: To date, our biggest win has been securing favorable territories in Florida with Wyndham. Our agreement with Wyndham grants us exclusive development rights to build 10 ECHO Suites in four attractive Florida MSAs. We actively sought markets with key extended-stay demand drivers, such as hospitals, construction, logistics, affordable housing shortages, and favorable supply-demand dynamics for extended-stay hotels. Recently, we closed on two parcels in Daytona Beach and Ocala. Both sites have received all relevant entitlements and are primed for construction.

What have been the challenges and how are you handling these challenges?

Dubi: The fundraising environment has been challenging, particularly for development deals. Many investors are waiting for distressed opportunities or prefer to invest higher in the capital stack. We believe this opportunity set is somewhat limited and highly competitive. With capital scarce and construction starts reduced, we see this as an opportune time to build before the market normalizes and development activity increases. In a few years, projects developed now will be delivered into a supply-starved environment at an irreplicable cost basis.

Chuchu: With interest rates at elevated levels, finding sensibly-priced financing has been challenging. To mitigate this, we have targeted lower-leverage construction loans to achieve more competitive pricing and reduce financing costs. Additionally, we are actively exploring financing programs like C-PACE, which will allow us to capitalize our projects with cost-effective long-term capital.

What do investors like about the opportunity? What are common concerns? 

Chuchu: As mentioned earlier, investors are attracted to the sector's proven resilience and profitability. Over the last 20 years, EES hotels have consistently performed well throughout all economic cycles and have shown remarkable resilience during downturns. Furthermore, the return profile is attractive. With its lean operating model, EES hotels can achieve higher NOI margins compared to traditional hotels, resulting in attractive development yields and strong cash yields post-refinancing.

Dubi: On common concerns, Investors often focus on the perceived development risk of our projects, which we believe is overstated. The hotel prototype is a very simple build and is fully designed at the outset. This allows us to estimate the building cost with a high level of accuracy and enter into favorable contractual arrangements that minimize our cost exposures. Furthermore, because other owners are developing the same prototype, we can engage general contractors with direct experience in building our exact prototype.

Due to the perceived development risk, most investors prefer an acquisition strategy. However, the fragmented nature of the segment makes acquisition opportunities at scale difficult. We firmly believe that new properties will significantly outperform older hotels in their respective submarket and attract institutional interest.

Lastly, concerns about oversupply in our markets are mitigated by the fundamental supply-demand imbalance for extended-stay hotels in the U.S. Demand far exceeds supply, particularly in the economy segment, where demand is approximately 11 percent while supply is only about 4 percent. This creates an almost three-to-one demand-to-supply imbalance. Additionally, the ability to develop in attractive markets is limited because major brands have existing locations and Area of Protection agreements that restrict new development.

What’s your view on emerging manager programs?

Chuchu: I think emerging manager programs fulfill an essential function by enabling access to niche investment strategies overlooked by larger funds and supporting increased diversity in the manager community. However, these programs must be more flexible in their mandate to be more effective. Despite the “emerging manager” moniker, most programs will not back first-time managers or seriously consider emerging managers until after their second fund.

What would be your advice to aspiring real estate entrepreneurs?

Dubi: Focus on how you’ll create alpha and what sets your approach apart. Clearly articulate your differentiation to potential investors without embellishing. Additionally, surround yourself with people who have relevant experience to educate you and challenge your assumptions. 

Chuchu: I agree with that and would add that you must also possess incredible resilience and deep conviction in your investment thesis. The journey to establishing your company will involve a lot of rejection, and without these two characteristics, it will be challenging to push through.

What does your ideal investment partner look like? 

Dubi: An ideal JV partner would be a programmatic investor willing to commit $30-$45 million in equity for developing a portfolio. We believe creating a portfolio is the best way to capitalize on the growing institutional interest in the space and achieve the best economic outcome. Additionally, and most importantly, this partner would be culturally compatible, prioritizing collaboration and transparency. 

Sources: Why Extended Stay Hotels Aren’t in Just a Hype Cycle / Wyndham Signs First 50 Hotels for New Economy Extended-Stay Brand