Why the founder of Yang Capital invests in both hotels and Airbnb

San Francisco's Tilden Hotel, located in a historic 1928 building, was entirely redesigned by founder Stephen Yang and designer Brian Smith. Photo credit: Yang Capital

Stephen Yang, the managing member and co-founder of San Francisco’s Yang Capital, has worked in just about every aspect of real estate, including development, repositioning, renovation, restructuring/work-outs, bankruptcy/foreclosure, fund management and fundraising.

We spoke with Yang about striking out on his own, San Francisco’s recent development struggles and why he believes home-sharing and traditional hotels can co-exist.

1. You have extensive experience in the real estate business. What made you want to strike out on your own and start your own group, Yang Capital, which you run in tandem with your wife?

From a very young age, probably eight to 12 years old, I always enjoyed business and especially having the independence that earning my own wages [provided]. The experiences I had working in banking and real estate led me to conclude that in order to match my investment principles with my work, I would need to start my own firm. Fortunately, I had investors that were willing to risk their capital alongside me. We have developed a strong reputation and track record over the past eight years.

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2. As a hotel owner, and within this current elongated cycle the hospitality industry is still in, though now dampened somewhat by swings in the market and the likelihood of at least three interest rate hikes this year, what do you foresee to be your biggest challenges, but also your biggest opportunities?

Stephen Yang
                      Stephen Yang

San Francisco, capital and myself are the biggest challenges. The city is really detached from the strong growth occurring around the Bay area. The city politics and voter base have severely hampered the experience of our visitors, who really are the backbone of our city tax revenue. We continue to see more opportunities than we have capital for. We are focused on lowering the cost and extending the duration of the capital we invest. We’re making slow progress. The biggest challenge is my own ego and being hard on myself.

I see a lot of opportunities to build our creative muscle within and around [our management arm] Point Hospitality Group. We are also continuing to evolve from a service business to a hospitality business. We are also evaluating opportunities in hospitality-related businesses.

3. How do you describe Yang Capital’s investment strategy? The Tilden Hotel in San Francisco seems to fit the bill of a value-add buy, where you acquire an undercapitalized asset, then renovate and convert. Is that the model? 

I think the Tilden is a decent example, but when you look across our portfolio to the different communities we invest in, the commonalities are long-term yield focus, value for growth and a people-first mentality.

4. As a hotel owner, your profitability and margins constantly are squeezed by the likes of online travel intermediaries, such as Expedia. How do you characterize your distribution strategy, and are the hotel brands, generally, doing enough? 

As an independent hotel owner, we rely upon the internet for a lot of our distribution until we begin to build a distinct following. Today, the online distribution market is changing, I believe, for the better. The early wave of Expedia and TripAdvisor added a lot of transparency to the consumer. This next phase, where Expedia needs Marriott more than vice versa, means that the large commissions charged will come down. This is good for the consumer, independent owners and travel agents.

5. San Francisco’s strict short-term home-rental laws recently kicked in, and should have some impact on Airbnb. What is your view of the home-sharing trend, and has it had a deleterious impact on hotels in the city? 

I am an investor in Airbnb. Airbnb co-founder Brian Chesky runs one of the best private companies in America. When Airbnb was experimenting with couch surfing, I was concerned as a hotel owner. Now that they are focused on creating unique experiences, I believe they are a great addition to the travel [space]. I am writing this from an Airbnb in Avon, Colo., where my family of five is staying. It’s invaluable to have a multibedroom option with kitchen for a skiing family. Travelers looking for a hotel experience will still seek out the best hotel experiences.

 

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