The next generation of super wealthy: Paul Fischmann, Eight Hotels Australia
Paul Fischmann is a thirty two year old hotelier based in Australia. His company Eight hotels Australia, is a boutique hotel operation with imminent openings in Canberra and Sydney. Just about to arrive on British shores, he is working with a private property developer based in London, who specializes in building hotels. Paul says “there are a couple of sites we are looking at. The plan is to build two boutique hotels with around eighty to a hundred rooms.” Paul pauses for a moment to talk excitedly about his love of London, then adds “These ideas were things I’d been looking at for a while so when I met a property guy and he said the same things as me, I knew it was meant to be.”
Paul says at the moment its a conceptual scheme but a joint venture is imminent and the property developer will also be involved in the retail side. In Paul’s view entering the UK with a prolific developer as a partner sounds good. Paul agrees “it will open up a lot more opportunities for us.”
I ask how he got into the hotel business. Paul settles back for a story. “I fell into it when I was twenty and had nothing to do. I got introduced to a young successful property developer, who owned a hotel in Sydney. He wasn’t a hotelier so intended to convert the building into apartments but didn’t get consent so he decided to run the hotel instead. I got a job with him and the office was in the hotel which meant I got a solid grounding in real estate and hotel development.” He continues “At the time he was also building a three story apartment block in Sydney, so I got a good education in finance too. After twelve months he booted me out which was fine, I’d made some money selling apartments for him and bought and sold a few of my own. I also picked up a lease on a boarding house in the City. So when I left, I built up a chain of back packing hostels over a number of years.” He ponders for a minute then smiles saying “Had my friend been in any other business, like selling tyres, I guess I would be doing that now.”
He counts himself lucky that he got the grounding he did then says of his first boss “He was a self made man, Russian-born who moved to Sydney when he was fourteen. He didn’t finish school but concentrated on building up a fortune in property.” Paul elaborates “he was associated with other Russian real estate guys who also came from nothing and who have also all become really successful. They were unbelievably inspirational. They went from nothing to really top tier business people. My parents were middle class but these guys really started at the bottom.” He finishes his thread saying ” It was an environment where anything was possible.”
He moves on to talk about his work offering an insight, “the hotel business segment and real estate as an asset class has become mainstream. In my view its down to positive sentiment, tourism growing astronomically and airplanes getting bigger.” He adds a balanced comment “Obviously there was a lull after the 9/11 terrorist attack and a difficult time when corporations were collapsing in 2001. SARs also knocked us but despite this our business has really bounced back.”
I mention the growth in the super rich investing in hotels and ask Paul why he thinks this is. He says. “In Australia residential property dropped off so this is why more people are looking at the hotel business.” Then muses “I think a lot of men just like the idea of saying they own a hotel. When I was younger and didn’t have a track record and approached people to operate a hotel in a building they owned, they preferred it to having a ‘boring office building’.” He reinforces his point “Its true. At the moment we are talking to a party, who has a plot of land. The office market is going through the roof which means it would be cheaper to build an office than a hotel. We’ve been talking to them for some time and although they’ve advised to build an office because its less risky they are keen to build a hotel.”
Paul does say that because there is so much interest in hotels and from operators that the business is becoming far more competitive. He comments “Management companies are going to start feeling the pinch as owners realize they can shop around. Operators are also spotting future growth in the industry and moving up a gear, making it harder for everyone.”
Paul set up the company ‘Eight Hotels’ in 2002 when he got his first hotel. He shares a view “it was easier then, hotels weren’t so financially attractive.” But before telling us about his current business he spins the interview tens years earlier. “I actually got into back-packing hotels when I was twenty two and then out at twenty six. I had five places with five hundred beds. It was profitable and fun.” He continues “but I was young and stupid and was fortunate to have had a good run, until it all came crashing down on me. He explains “at one point, I took my eye off the ball. Everything was going so well, I thought I was invincible. Then it all went wrong.” He reveals “I had a fantastic management team running the business so chose to move away from day to day control. Eventually the team dismantled and newer people weren’t so committed so the business started to suffer.”
He says the straw that broke the camels back was a restaurant venture which was a departure from his normal expertise. Paul comments “There was a building in Kings Cross, Sydney, a thirty nine apartment block which had fourteen different owners and a restaurant owned by someone else making fifteen. I thought it would be a fantastic back packer hotel, so I spent a year putting together a deal with an option to rent and buy the apartments. It knew it would have to get approval from the council for change of use, but it seemed likely. The restaurant was Belgium themed which was just wrong and it was doing really badly. It was obvious it was going to close. We spoke to the landlord and agreed to take over the lease when it expired.” Paul continues “Then I heard on the grapevine that a new group of City convenience stores were trying to get the lease too. He says wide eyed “These stores were suddenly popping up everywhere they went from none to fifty overnight.” He continues excitedly “I freaked out. I just knew I couldn’t lose that lease, it was an essential hangout space for cheap beers and fries. I went straight to the owner and got him to sell to me.” He pauses and then says “with the benefit of hindsight, that was my first mistake, I still had to wait six months for the planning to go through.”
After this he says a friend approached him proposing that they do something with the restaurant. Paul says: I agreed, so we built an up-market venue; opened and started losing money from day one.” Paul says the nail in the coffin went in shortly afterwards: The Lord Mayor, declined his application to turn the building into a back packer hotel. He is pragmatic but the strain of past times is heard in his voice as he finishes. “We kept it open for as long as we could.”
I wonder what lessons he felt he learned from an obviously difficult time. His energy revives. “From a business point of view, I really grew up.” Then adds “Its hard to put into words. I had people tell me the whole time not to go anywhere near the deal but I did and I would do it again. I had to go through it to learn.” He adds a view “There is only so much people can tell you. My old man told me what to do all the time and I didn’t listen to a word.”
So how did he cope with the financial strain? Paul thinks then confides “I begged and borrowed from banks and other people and sold the back packers business to pay off the debt (for around A$450,000) then started again.” I just check to see if this amount cleared all the debt. He replies honestly “there was still some debt to pay but I cleared it up within a year or two.” Then highlights the sentiment he felt at the time “I was twenty six and went from having cash to burn to having no money at all. People do look at you and say ‘its not that easy’.”
Fortunately there was some light at the end of the tunnel. Paul explains “While all the bad stuff was happening, I got approached by a property agent. He’d spoken to some owners who were going to build a medical centre and he mentioned that he knew me and told them about my back packing hotels. The owners asked for a meeting. The first time I met them, I said ‘don’t do back packer hotels build something with decent rooms, en-suite and air-con’.” He continues “By that time everyone was getting into back packer hotels but I had a new vision: budget hotels that were quite cool and en-suite. I felt strongly that there weren’t enough hotels in the area like this. The property they were talking about had an excellent location and I just felt it would work.”
Seeing a golden opportunity, Paul approached his girlfriends (at the time) stepfather who he says was a real entrepreneur in the fashion business. Paul says “I said ‘I’m working on this deal, if you put up all the money, I’ll give you half the business’.” He hasn’t looked back since but adds “but having lost everything before you are always wary which is good, it keeps you on your toes.”
On the value of the company he is reluctant to comment, more eager to talk about his passion for the business. He says “I don’t know what the value is and I really am not interested. We have two new hotels opening which will triple our size and we are about to buy a building in Melbourne. If I had to guess, I would expect to get A$20 million for the company but I’m not really interested in doing anything other than hotels. I’ve dabbled before and haven’t really enjoyed it.”
As Paul is a young entrepreneur I ask how he runs his finances and his level of knowledge of sophisticated investments and markets. Is he hedge fund or private equity savvy and running structures offshore? Paul contemplates then says “We split our business up into two different banks. When we do real estate buys, we go through a commercial mortgage broker and look for the best deal.” Then says “I wish I was savvy enough to understand financial markets, but I’m not. One day I will invest, if I get big enough.” He adds “I keep all our money in the business but I’ve been advised I should start doing some more with it.” Then confides “When I got burned a few years back and when I think about the hotel business and how things can affect the circumstances quite quickly, like paying rent on leases, I feel more comfortable, having the cash at hand.”
Of his future plans he says “I don’t think we need to come up with anything revolutionary and in my view the hotel business can’t be revolutionized anyway. The whole boutique thing trying to position hotels as a design space rather than a place to rest your head and have a shower is crazy. If you have a great location then instill a fantastic business culture and push that down to all staff and housekeepers; don’t pay too much for the hotel and position it for the right market then that is pretty much it.”
I ask who his target market for the chain is. Paul comments “Everybody is our target market. Although we do end up with a certain sort of guest, stay with us, our doors are open to everyone.”
On opening in London Paul is excited and says “I really like London. The idea of going to a country with sixty million people in it with amazing cultures and people is very appealing.” He adds “Its more attractive than America because Australian regulations and practices are similar. America is a different ball park altogether.” He continues “I’ve spent a lot of time in London and think there is so much more opportunity than Australia. There are something like nine hundred and ninety hotels in London alone. In Sydney, according to trip adviser its about two hundred.” He enthuses “I also want pounds rolling through the business, its worth so much more than the Australian dollar. We are dying to get over there.”
He conceded that he still needs to conquer Australia fully but says the opportunity to open in Britain was so good he is ‘jumping in’. He justifies this decision by saying “although I have learned lately that I need to start paying for the right kind of advice. In the last few years building a business from nothing, I’ve got more choosy about who I work with. I think if you want to be successful in life you need to be around successful people. So you look at who they are advised by and generally that approach work has worked for me.”
As to how he will promote the expanding British business, he says he isn’t planning to invest in public relations services. I suggest this is a radical departure from the norm. Usually in Britain lifestyle PR’s hunt journalists down and harpoon them. Paul comments “We may change our view but at the moment we are keeping it all in house. My staff say there is nobody better to promote the business than them so we create and maintain relationships where we need it and the upside is, it doesn’t cost us anything.”
On the topic of money, I ask what he plans to do with it all when he feels he has enough. He comments “I don’t have thoughts about money at all and don’t need much to live an amazing life.” Then questions himself: “Maybe I should start to? I’m just enjoying building the business and one day I’ll hand the money over to one of your clever wealth management guys and let them make a nice return it.”
I suggest to Paul that philanthropy is becoming the second career for early achievers and ask if this may be a possibility. Paul says “I would prefer to give money to people who’ve helped me create what I have, like friends and family” adding “I’m not in a position to give away any significant amount of money at the moment although we do help with charity projects for the homeless.”∆í√Ǭ¢ ¬°
Paul will be looking for further opening opportunities in the hotel/property business in the UK and continental Europe.
