Episode 16: How Company Culture Reflects Personal Culture
Ryan and guest Neal Khatri discuss how company culture is formed by family and personal experience. Neal describes his upbringing and how his elders shaped his work ethic and ability to form a strong office culture.
Neal Khatri:
What you're going to do is like getting a free elephant. Not if he was working to get a free elephant. Well-
Ryan Swehla:
You have to feed it.
Neal Khatri:
You don't know you have to feed it but I have someone in the [inaudible 00:00:13] and where are you going to get a free elephant as well? Think about how much you got to feed him and forget about the elephant. It looks good or tell someone you got a free elephant. So literally you're in a hotel, today if someone gave you a 500 room hotel just to take over. I wouldn't.
Narrator:
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Ryan Swehla:
Today I'm here with Neal Khatri and we're talking a little bit about your family, your history and how you guys got to where you are today. Your family operates and owns six hotels throughout Northern California and also does a little bit of real estate investing and maybe I thought I'd start out by just asking you to talk a little bit about your history, how the business started and how you got here.
Neal Khatri:
Well, it started many years ago. My uncle signed up to come to US. Back in the 50s the United States had a lottery system, they went out to all different countries and who would legally let people come and become a legal immigrant. You get a green card when you arrive here, what you do is you put your name in a container at a post office.
Neal Khatri:
If your name comes up... It's like winning the lottery and they contact you. You got to remember in the 50s it's like everything's paper, my uncle received the notice that you have been chosen and you're one of X amount of people, and there was three of them friends, they all got chosen. So three of them decided, no, we want to go, and so they borrowed and used the money, whatever they had.
Neal Khatri:
It was just me and my uncle and my dad, two brothers had no sisters had a father mother passed away long time ago, but they both had families. My uncle left, came here, didn't know English, didn't have any money, no friends, no relatives, we're talking well as old as I am back. In fact, he came the year I was born but they said that was the good luck.
Neal Khatri:
Anyway, they came here and it was a very tough lifestyle. He was living in a hotel in San Francisco one of these transient hotels, if you remember, years ago where you had to go in the hallway for a bathroom and that's an Indian fellow that is I'll let you stay here but you got to do all the janitorial work in exchange for a free room. The room was 10 by 10 with a sink in it.
Neal Khatri:
That's it. You had to go to the hallway for the bathroom. Anyway, he learned English, made few bucks, he made some friends and he thought the hotel business was fairly simple. You don't have to be too smart. Just work hard. Basically give a key, take the money and clean the hotel. Keep it clean for the guests. We're talking about transient. In those days, he told me the rooms were going for $1.25 cents and if you had a room with a bathroom, it would costs about $3.
Ryan Swehla:
Wow.
Neal Khatri:
Transient hotel. Anyway, he was able to lease one in Oakland for $5,000, but he borrowed $500 from five fellow Indian friends.
Ryan Swehla:
Wow.
Neal Khatri:
No money out of his pocket, but in those days, shook hands and bought it. So he needed some help. During those five, six years, he became a citizen and he was able to sponsor his wife and children and he sponsored my dad or that is his brother, real brother and Nick, whom you know, is my oldest brother. That's how five, six, seven people and I got plenty of help.
Ryan Swehla:
Yeah.
Neal Khatri:
And so they're working day and night, they're freshly to US, don't know the language of major barrier. Don't know it, there was no very little TV, but I think maybe three channels, it was black and white in the '50s. He didn't even have a car, had nothing but they worked hard and did okay. They made the $5,000 in about two years, three or something like that. Then my dad sponsored my mom and rest of the siblings, four other siblings.
Ryan Swehla:
How did you end up acquiring your first property in this area?
Neal Khatri:
In this area? Again, I was very young in 64 barely. I think I was in elementary school. My brother, you know Johnny and Nick. Johnny was always the entrepreneur, want to do something different in life and he found out there was a hotel for sale in Modesto, but that was in 73 now. We all had some education, spoke English and think new little bit, lot more than we first came.
Neal Khatri:
He and my dad and my oldest brother came here and looked at the tropics on McHenry and it was a beautiful hotel in those days in 1973 with a 60 room, a bar and a restaurant for very reasonable price. Well, today is very reasonable, but a different venture, much nicer clientele, higher grade of ... it was a franchise hotel at that time and we really liked it.
Neal Khatri:
Then from that, we bought another one and another one, several in Modesto. In fact, owners in those days, it was all more of a mom and pap type of hotels. His major chains weren't around like a holiday and that the big holiday Inn or the Marietta, the big Marietta or Hilton, nobody had the type of what we call a driving little hotel, where you go right into your room and the parking's right there. It was all either a high rise or the mom and pap.
Narrator:
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Ryan Swehla:
Some people look at family business and they think conflict. They think, "Oh, I don't know that I'd want to be in business with my family." And your family has made it. It's become a part of your success rather than a barrier to your success. Why is it different? How has it worked different?
Neal Khatri:
Well, I think our culture, the Indian culture is based on family. He went back in India, I think more so the reason why people can't afford their own housing, as you know, India is very, very crowded. I think that's what made the culture that you stay with the family. It's not uncommon to see a father with three married children in the little two bedroom home in India to this day.
Neal Khatri:
Where are they going to go? And so our culture specifically, the Indian culture, as you know is very, tight, and you see it today. Very tight knit family oriented.
Ryan Swehla:
You guys have purchased a lot of real estate along the way? Do you have any advice for those who are looking to make their first purchase in real estate or how you evaluate real estate?
Neal Khatri:
Two things that we look at is location is everything and second thing is the right price. If you over pay going in knowing you're overpaying, you're probably in bad times may have to sell and you're going to lose money. Location and finding the right deal. If that's where you made the money the day you buy it. I think there's some other people say that you made your money on the day you bought it and then over time we have bought many, many properties.
Neal Khatri:
We've sold very little and we have become very knowledgeable and nowadays with the computer, there's so much knowledge. The other secret has been, everything we own, we're not more than 30 miles away. That would be a major secret that it's not a secret, but what people say, what's your secret, of course, family is number one, but being close to what you own.
Ryan Swehla:
That seems like common sense on the surface and yet we often see people dabbling in other geographies, as we've talked over our friendship, I've heard you always zero in, on price per square foot price and it almost seems like that's the first indicator of if there's any merit to a particular purchases, price per square foot.
Neal Khatri:
And the location. If it's not even where you want it. Forget it. Who cares about the price. Location is number one and the other thing is do what you know best. Don't just say real estate is good because everybody's making money. Anything is good if you know what you're doing. There's tons of types of businesses people run and they're very successful because they stay in what they know.
Neal Khatri:
You can't just jump here and jump there and jump there in large amount of money cause if you get hit, it's tough to come back as you get older, especially 60 years old and says, "I'm going to change my path. I think I'm going to go and do whatever."
Ryan Swehla:
The culture that you have as a person emanates out into your business and into your life. That has to in some way, be a reflection of your family, your family values and how that culture has emanated out to how you treat employees.
Neal Khatri:
They like that we were a family business and not a big corporate where today you're here, tomorrow you're fired. They don't know who the boss is. They can come, literally come see me. Any employee, even making the minimum wage, they can come see me. My doors are open for anyone of them. In our business, maintaining a good property and a good customer base is everything.
Neal Khatri:
That's our success. It's not just a one-time customer. A return customer is what we want. New customer, you can't find a thousand new customers every day. No one can. Is keeping the old ones keep going after new ones. So it's a hospitality business and we are very hospitable to our friends, relatives. That's in our blood. If someone came to my home, they don't go without drinking water, tea or something. We just don't let them go. You can't. They say, no, you don't..." You have to.
Ryan Swehla:
I'm guessing when you stay in other hotels, just like when I walk into another office building or another apartment complex, I just can't help but start seeing that's good. That's bad. Why haven't they done this? Oh, I like if they did that. I'm guessing when you stay in a hotel you see the same thing right?
Neal Khatri:
I literally run our hotel drive up and I see all the issues could be very minor, but I am, "How did you see that? How did you see that?" I say, "Well, God gave me more eyes." That's all. It's a joke.
Ryan Swehla:
Yeah. Exactly. What about going to other hotel properties?
Neal Khatri:
Oh yeah. I learn a lot going to other hotels and actually nowadays you can take pictures and bring that back and also I attend a lot of seminars, conventions, and I happen to know a lot of people in the business. I'd been in it 47 years and in Modesto, in the hotel business. So real old timer but never too old to learn new tricks.
Neal Khatri:
They're out there and main thing, if I can keep a customer happy and my employees happy, I'll be happy if I can do those two things. We've managed to do that, but it is a tough world out there. Now you need a lot more money to invest. You need good employees, very tough to get good employees, especially during COVID-19 a lot of hotels that are in tough times.
Ryan Swehla:
How do you see that playing out, going forward? As hopefully a vaccine comes, what do you see the future of hospitality looking like, do you see permanent changes or temporary?
Neal Khatri:
Of course. I think the real, this will separate the men from the boys. The ones who's got deep roots and that has been at the business long time and being around and we have seen recession, inflation, many things in life. We have managed to hang in there just because we've been in a long time. I feel sorry for someone who just got started because by the way, hotel economy, couple of years ago was fantastic.
Neal Khatri:
Some of the best ever in the industry, because there was lots of money. People were traveling. In fact, economy and hotels go hand in hand. If economy is good, hotels are good economies, bad hotels are bad. Those two things you have to see, and the ones that have been in it, hopefully they're not highly leveraged but hang in there yet. I know some guys that went way overboard thinking this is unstoppable.
Neal Khatri:
The occupancy was going like 80, 90% at the highest average rate all over the place. I think those are the peoples that I think I can make more money. I know throughout last four or five decades, every 10 years, there's a down and it comes back, there's a down, it comes back and I I've lived that and even my own family wanted to do something big.
Neal Khatri:
I said, "No, hold back. We're doing just fine." Sometime it's just wanting to get to a different level. Well, there's no reason to. We're very comfortable. We do very well where we're at and I just think for someone there's going to be tremendous opportunity at could be 50 cents on the dollar, if you will and do move around all over the place.
Ryan Swehla:
Well, it's something you haven't touched on too much, but you mentioned the word leverage when especially in the hotel business, I have to imagine because revenue can go to zero tomorrow or to effectively zero tomorrow being in a strong financial position where you don't have that substantial loan payment that you have to make every single month. Can you speak to that a little bit? How has that helped you guys navigate through cycles?
Neal Khatri:
Oh, as I said, we've been very fortunate. We have a fantastic arrangement with many, many banks. The difference today versus 50 years ago, bank swapped me. In those days I wanted the banks. Now I pick which bank I want because we're at that level where we have excellent credit, we can borrow a large amount of money if we want it to but we're still very careful in our investments.
Neal Khatri:
We just don't want highly leverage just because a huge 500 room hotel comes up. What are you going to do is like getting a free elephant. A lot of people's work, can you get a free elephant? Well, you don't know. You have to feed it. I have someone in the family ask, "Where are you going to get a free elephant?" I said, "Well, think about how much you got to feed him. Forget about the elephant."
Neal Khatri:
It looks good or tell someone I got a free elephant. Literally you're in a hotel. Today if someone gave you a 500 room hotel just to take over, I wouldn't. There's no business. We've been very fortunate, very fortunate to be in valley. We're not saying just our holdings, but in the whole value of business has been as outnumbered. Anything in the Bay area or if you're close to like Anaheim, it's all derived on a Disneyland.
Neal Khatri:
There's no Disneyland. There's no business, Las Vegas they're hurting bad. I just think it's going to be a totally different picture going forward. I just don't know. I feel sorry. I know some guys that were just finishing up a new hotel, just think what they're thinking and we're talking about Lars and dumber. I want a hundred room hotel. They may be paying $25 million today, but that was a growing rate.
Neal Khatri:
You still make good money. You want at that price but I just knew in my mind, you can't sustain the business. You've got to remember. It's always rainy days. Remember that in life. It's not always rosy. It's not beautiful sunshine guaranteed. Whether it's in business, your own health or your own family, those things will always come around.
Ryan Swehla:
On that note. As we're rounding out today, I know that your, your father and your uncle were big influences in your life and helped really start the business. Is there any words of wisdom that you remember either of those two saying to you that have kind of stuck with you your whole life?
Neal Khatri:
As I said, our biggest asset has been our family being together in business. It's really, we've had some things happen in the family that you can't help it. I lost both of my uncle and my dad and my aunt and my mom and still, but they basically said, as long as you're together, nobody's going to break you. If you go single, it can be broken, take one stick, hit it hard enough. It'll break in half, take four sticks, not easy to break.
Neal Khatri:
That's what I live by. Always, my dad said, "I hope you guys stay together the rest of your life and your children and hopefully it keeps going." That's your biggest asset if you can do that. Being alone is not good. You went in business. That's our biggest asset and again, be very honest, be good to anybody, a friend, relative, the community.
Neal Khatri:
We're very involved in the community. I'm on many different boards and I really enjoy doing it. I love giving back of what I have learned all my lifetime and one last thing I would like to say that I would categorize us as being, we have lived the American dream.
Ryan Swehla:
Yeah. very true. Well, thank you so much for your time today and I appreciate it.
Neal Khatri:
Thank you. I appreciate you inviting me.
Narrator:
Thank you for listening to durable value. An Investors podcast, where we demystify commercial real estate with safe, sound investment strategies, to help you balance your portfolio. If you enjoyed this podcast, be sure to rate it on iTunes or wherever you get your podcasts.
Narrator:
To learn more, visit graceadapartners.com, where you'll find more information, investors tools, case studies and more. This podcast is hosted by Joe Muratore and Ryan Swehla. It's produced, edited and mixed by Melodic with intro music by Ian Post. Thanks again for listening and we'll see you next time.