What It Costs to Build a Feeling

Cuyama Buckhorn, a 21-room hotel about two hours north of Los Angeles, spends roughly $5,000 a year on candles. None of it was in the original budget. "But it's a must," said Ferial Sadeghian, the architect and designer who owns the property. The bar is always candlelit, and the fire pits stay lit until the last guest has walked to their room.

That small, stubborn line item set the terms for one of the most candid sessions at this year's Boutique Hotel Owners Conference. Sadeghian moderated a conversation with Jayson Seidman, founder and managing partner of Sandstone, whose portfolio includes St. Vincent in New Orleans. Seidman came to hospitality from finance. Sadeghian came from design. Both arrived at the same conclusion: the details a guest remembers are usually the hardest ones to justify to a lender, and an owner's job is to protect them anyway.

What follows are the lessons from that exchange, from site selection and budgeting to revenue mix and capital.

Due diligence begins before the spreadsheet

Sadeghian opened with the question every owner-developer eventually faces: does a hotel start with a pro forma or a vision?

Seidman's answer came from an early mentor at Grupo Habita, the Mexico City hotel group. While still working in finance, he cold-called the group to pitch a small hotel in Miami Beach. The founder he met had no interest in Miami. Instead, he sent Seidman to Austin, where he had grown up, with an unusual assignment: talk to everyone. "Go to a bar and talk to the bartenders, and go to the coffee shops and the baristas," Seidman recalled being told. "Then you'll get a sense for where the energy is happening in that city."

Once Seidman had a property under contract, the finance instinct kicked in. "I was like, I'm going to run all these numbers," he said. His mentor stopped him. "Go to the property. Go at 5 a.m. Close your eyes when you're standing there. What do you hear? Record that. Go back at 6 p.m. Go at 2 a.m. Do that over the course of a week, and let me know how that makes you feel."

That exercise, Seidman said, is the first indication of what a project needs to add to complement what already surrounds it. It also explains the name of his company. "It's all about responding to your surroundings and paying attention and evolving," he said. "Kind of just like sandstone."

Sadeghian described a similar process at Cuyama Buckhorn, a 1952 property that successive owners had turned into many things, few of them good for the surrounding community. Her team began by listening to locals. She also raised a pointed concern about the industry's current vocabulary of land and place. "A lot of hotels, when you really go deep in it, it is a big marketing angle rather than actually making it work," she said. Site-responsive design has to show up in the building and the budget, or it is only copy.

The lesson for owners: treat observation as formal diligence. Visit at different hours, talk to the people who work nearby, and write down what you notice. Those notes become the brief that protects the project's identity when the cost-cutting starts.

Budgeting for theater

Seidman was frank about budgets. The truly spectacular hotels, he said, are usually the ones built by an ultra-high-net-worth owner willing to spend for impact. "There's no real budget for the good ones," he said. "But let's be real. We're at the mercy of lenders. We're at the mercy of investors." He called that discipline useful: it keeps a team aligned and stops money from being spent for its own sake.

The challenge is knowing where to spend. Seidman described a current project that combines new construction with major historic preservation, where contractor bids came back wildly apart. A gap like that, he said, is the moment to remind everyone what business they are in. "We're in the hospitality space, so that means it's theatrical," he said. "What does the guest interact with? What level of finish do you need in the back of house? Where do you spend the money?"

The questions become practical:

• Is a dramatic signature element, his example was a staircase, worth what it displaces elsewhere?

• Where can back-of-house costs come down without compromising employee well-being?

• How do you underwrite a project with no true comparables? "Every project I've tackled, I can't comp," Seidman said.

Why per-key numbers mislead

Lenders, appraisers, and investors all lean on cost per key. Seidman argued the metric distorts boutique projects because so many include what are effectively standalone businesses. "When you use this per-key analysis that everyone loves to use, it's not apples to apples," he said. "You're building a standalone restaurant. You're building a standalone spa." Fold all of that into one number and a project looks far more expensive per room than its rooms actually are.

His fix is to allocate every revenue stream and its capital cost to its own bucket, then defend each on its merits. Pitch too conservatively and lenders see through it. Pitch with no discipline at all and they decline. Meanwhile, the clock runs. "Time kills all deals," he said. "We all know that."

The candle line

Sadeghian's candles turned out to be a shared obsession. Seidman called candles and incense a significant line item at his properties, along with propane for the fire pits. He favors candlelight and low light, and has moved away from heavy room scenting, noting that many guests are sensitive to fragrance.

His practical advice drew knowing laughter. "As soon as you put that in a budget, it's gone," he said, meaning it will be reallocated to something else. His answer is to keep two budgets: the bank's, and a separate reserve for atmosphere that he protects himself. He has also seen lenders begin treating FF&E, OS&E, and working capital as a separate line of credit alongside the senior loan.

The low light has a side effect he welcomes. His properties are hard to photograph. "It's a place that you can't capture with a camera," he said. "I want people to show up, and I want people to go and see it for themselves."

Where the revenue actually comes from

Conventional wisdom treats food and beverage as a supporting line, a modest share of a hotel's revenue. At Cuyama Buckhorn, it is the majority. "We didn't expect that," Sadeghian said. It meant more staff and higher cost of goods. "It just changes the whole operation," she said.

Seidman's experience runs the same direction, only further. At his properties with the space for it, food, beverage, and events far outweigh rooms, even at high nightly rates. "I set out on this mission to be a hotel guy," he said. "In my mind, hotel meant rooms, and you're going to have amenities, and that's kind of it. I couldn't have been more wrong."

Fewer, better people

A premium food and beverage program requires more expensive, better-trained staff, and keeping them is costly. Seidman's answer is to hire fewer people and invest more in each. "I have less of them, but better," he said. "Quality over quantity." The goal is food and beverage that justifies the room rate.

He described two ways to read the economics. In one, food and beverage profit covers fixed costs such as debt service, insurance, and taxes, and room profit is upside. In the other, the rooms carry the real estate and food and beverage is upside. At his older properties, much of any surplus goes back into the building. "I tell my team, if we just break even, we're good," he said. Avoiding a capital call counts as success.

Membership in place of a restaurant

Not every property has room for a major restaurant. At his motel conversions, Seidman invested heavily in landscaping and atmosphere, then built membership instead. He phased out day passes to focus on annual memberships paid upfront, and the program now brings in hundreds of members a year. Some guest rooms have become wellness spaces for sound baths and private massage, run through partnerships. "It creates a little bit of a community," he said, "a village of sorts."

Retail that can't be found online

Seidman also revised a position he once argued from a BLLA stage. He used to champion hotel retail broadly, until owners kept asking him the same questions: where to store inventory, who pays for the added staff, how to run e-commerce. "I'm realizing that the best retail is the stuff you can't get," he said.

His hats are sold only on property, never online, and he raised their price well past what his team thought reasonable. They sell out anyway. "It is a badge of honor when you go to these properties and you can get one of my hats," he said. He has cut his product count to a handful and leans on consignment for high-value pieces such as vintage watches and fine jewelry. The consignors carry the cost of that inventory, and the shop gains objects guests talk about.

Small, residential, and specific

Seidman has little patience for the industry's old rule of thumb that a hotel needs a large key count to make money. In his definition, a property with dozens upon dozens of rooms is no longer boutique. "You could have 10 keys and crush it," he said. Independents now have marketing tools that let them compete with far larger players, and he sees that as a structural advantage.

The same thinking drives where he builds. He avoids central business districts and convention neighborhoods, where hotels live on trade shows and group business. He looks instead in residential areas, ideally for a building the neighbors want someone to rescue, "almost to the point where the neighbors are begging you to do something with it."

St. Vincent in New Orleans is his clearest example. Built as an orphanage, the property had operated for decades as a hostel and had become, in his words, closer to a halfway house. Owners of the handsome homes around it struggled to restore or rent them. To preserve its legal use while zoning was confirmed, Seidman had to keep the hostel running for two years. "One day, I want to write a screenplay," he said. He argued the project would not have had the same impact anywhere else.

His work in progress is a historic hot springs in Lake County, Northern California, which he and his partners have owned for years. The original resort burned down. Testing by a prospective Japanese partner found the water unusually rich in minerals, including magnesium. That finding became the project's anchor. "This is our north star," Seidman said. "We don't need to make up anything." The plan is a high-end glamping resort built around the water.

This is what separates site-responsive design from the marketing claim Sadeghian cautioned against. The site's own history and physical character set the program, and the budget follows.

Financing a decade-long project

Asked where capital is flowing, Seidman's short answer was that, on the debt side, it largely isn't. "For the longest time, hotels were taboo," he said of lenders' attitude toward the asset class. After years of aggressive hotel lending, many say they are over-allocated. His advice, unusual from a former banker, was to be cautious about relying on bank debt.

The bigger shift is time. Seidman said project life cycles have stretched from a few years to a decade or more for some of his current work, a horizon most traditional lenders won't underwrite.

What he has found instead:

• Credit unions. He has secured long-term notes on favorable terms. "There's really a unique kind of niche lending environment," he said.

• Patient equity. Investors willing to wait, and who care about the project, are essential.

• Clear eyes about control. "The only problem with equity is there are always strings attached," Seidman said. Private investors tend to steer decisions because they write the check. Funds and institutions can be harder to align.

His closing advice was the most practical of the session. "Start small, things that are easy to manage, and don't overthink it," he said. "You can always grow." Let the project prove itself, so that, in his words, "you feel like you really did something right."

"And then you show people," Sadeghian added.

For owners

1. Make observation part of diligence. Visit a site at different hours over several days, and record what you hear and feel. Talk to the people who work nearby.

2. Spend where the guest is. Prioritize what guests touch and see, and value-engineer the back of house without compromising staff well-being.

3. Break the per-key number apart. Give rooms, restaurant, spa, and events their own capital and revenue lines so lenders evaluate each on its merits.

4. Protect the atmosphere budget. Candles, incense, fire pits, and lighting are operating essentials. Keep them somewhere they won't be reallocated.

5. Expect food and beverage to matter more than the model says. Staff it for quality rather than volume.

6. Consider membership where a full restaurant doesn't fit.

7. Make retail scarce. A few on-property-only items, and consignment for high-value pieces, can outperform a broad assortment.

8. Finance for the real timeline. Expect long horizons, explore credit unions and patient equity, and understand who will control decisions before taking their money.

9. Start small. Prove the concept, then grow it.