How to Invest in Pet Hotels: Financing the Dog Boarding & Pet Hospitality Boom with Private Credit

Robert Capelli (00:00)

And about two years ago, a group of us looked at buying boarding kennels. We’ve experienced that as our own, writing checks after a vacation to Hawaii or such, and looked at getting into that space and realized that

The space there was a lot of sellers, but when it came to financing the SBA was the only facility available And then that facility through the SBA limits you on what you can do right through their 7a loan I believe it’s about a five million dollar total Outlay and that would buy about three and a half kennels in today’s market and there’s about ten thousand of them

Dylan Silver (02:05)

Hey folks, welcome back to the show. Today’s guest, Robert Capelli has a background building companies raising capital and designing systems that turn fragmented industries into scalable, investable platforms and his new venture, Canine Investments is a private credit bank in the pet hospitality space. Robert, welcome to the show.

Robert Capelli (02:27)

Dylan, thank you for having me.

Dylan Silver (02:29)

It’s great to have you on here, Robert. Pet hospitality, we were talking a bit before hopping on. What a niche space to be in. But before we dive into that, how did you get into pet hospitality?

Robert Capelli (02:40)

So I’m what you consider a welping box baby, right? Where puppies are born. My grandmother did Great Danes as I grew up. So I was always with the dogs. and as I got a little bit older, I did some boarding for stud dogs that were being moved across the country from the East coast to the West coast for breeding purposes. So high value dogs that were coming in through the States or internationally and then did their deed.

if you will, and then we’re shipped back out. So I’ve always been a part of that. did real estate in the early 2000s, direct lending, residential and commercial. So I had a background in that.

And about two years ago, a group of us looked at buying boarding kennels. We’ve experienced that as our own, writing checks after a vacation to Hawaii or such, and looked at getting into that space and realized that

The space there was a lot of sellers, but when it came to financing the SBA was the only facility available And then that facility through the SBA limits you on what you can do right through their 7a loan I believe it’s about a five million dollar total Outlay and that would buy about three and a half kennels in today’s market and there’s about ten thousand of them

So we figured you know it instead of just being a kennel owner operator, which is good cash flow

in a small, nice little business, we could actually be a credit facility. And so we went about setting up K9 Investments and the K9 Capital Fund to be a private credit facility and owner operator of businesses.

Dylan Silver (04:08)

Right,

Now, how long has this luxury, you know, pet hospitality space been around? I feel like I remembered seeing, if I’m not misremembering this, on the mass pike heading into Boston, this luxury pet facility. think, oh, that this was like 15 years ago. I’m like, oh, that’s that’s interesting. But now I see them all over the place. How long has has pet luxury hospitality been around?

Robert Capelli (04:35)

So I think you’re about right. I think maybe the 10 to 15 year they switched the name, right? It’s all boarding kennels, right? It’s the same exact experience, if you will, right? Pet owner drops the pet off, they stay for a period of time, pet owner picks them up, right? Inside the facility, those facilities have been increasing, I guess, the luxury or the experience, if you will. And this goes back even in San Francisco when…

Dogtopia and some of those other Rover, right, which is a personal pet sitter would come as tech started to get into it. The millennials and some of Gen X all started asking for a better experience and mainly for them, right? Not even for their dog. Their dog is there having fun, but it’s a piece of mind when you drop your dog off for somebody else to care for you, you want that piece of mind, right? And so pet resort, pet luxury.

all started to become a thing. then, and then it’s just more money is coming into the space. It’s, it’s a heavy space, just a niche that nobody really knows about. And so that’s why you’ve seen that transition.

Dylan Silver (06:27)

Now, when we talk about, you know, pet hotels, pet hospitality, this was, as we’re talking about here, you know, a newer space to get involved in, but it does seem to have this tremendous growth. We were talking before the podcast, there’s only a handful of ways right now where people are starting these pet hotels. You either have to have the cash yourself, be self-funded, or you take out an SBA loan. So are folks that are starting these, you know,

pet hotels, these places, are they coming from a background as business owners and folks who have great familiarity with SBA in order to parlay that, if you will, into the pet hospitality space?

Robert Capelli (07:10)

So I think the first thing that you see for people coming in is an emotional attachment to dogs, right? Because you have to have that and for being around them all day. But no, mean, lot of these people, majority, would say, unless they’re already an operator, have not experienced the SBA, right? And the SBA is three years of tax returns, a personal guarantee, a credit score over a certain point. And you go through a loan originator somewhere in your local bank that will package it all up and sell it.

to the SBA and the SBA approves it and then you have a 25-30 year amortized loan, a mortgage if you will. But that requires either past experience or a great credit history if you will, a low risk buyer. And so that is really limiting the space, right? And as the value of the kennels increases, ⁓ it’s harder and harder for those people to qualify or come in with the cash.

or owner operators to carry the note, right? I mean, and so that is really the biggest bottleneck in this space from upgrading facilities to having new owners is really the credit available.

Dylan Silver (08:16)

Now, when we talk about building facilities, I’ve heard from multifamily investors that if you’re looking at building new apartments, and this is shocking to me, because as a Texas licensed agent, I see new apartments going up everywhere, but that it’s tougher or more challenging to get these deals to underwrite because of the build costs that are involved. So when folks are looking at opening a new pet hotel, are they looking at

you know, ground up construction. Are they looking at transforming, you know, a pre-existing space? You could call it, you know, office space into a pet hotel, or is it a mix of both?

Robert Capelli (08:55)

kind of a mix of both. so with multifamily, and I’m not as familiar with multifamily, but I’m sure there’s some type of ordinance that you have to get a license to be able to have that within that space, right? And that’s one of the big hurdles with kennels is to build a new one, you have to go through the town or the county or the city and get approval for a commercial facility. All these have to be licensed as a commercial facility. And then they’ll limit the amount of ⁓

of dogs that you can have or doors, if you will, in that facility. So what you see mostly is people taking over existing businesses that may have already established a clientele base or in the past have and still have that active license available and then they buy and upgrade.

Dylan Silver (10:14)

Now, I wanna get a little granular into the operations of these facilities. So when we talk about, you know, pets days, it’s, know, family goes on vacation or, you know, it’s the holidays right now, holiday season, your people are traveling, I’m traveling. So these are pretty much staffed like all of the time, right?

Robert Capelli (10:32)

They are, and they’re staffed by, you know, you can, there’s a couple different ways to do it, right? And the two models that we see mostly are, you have a designated, you know, staff that is full-time and they rotate, or you have a bunch of part-time, younger, college-age type high school kids that, or retirees, right? That want to work 20 hours or 15 hours a week, and they rotate that staff throughout. So, it’s a job creator in the community for younger and older.

people.

Dylan Silver (11:00)

Now, some of the things that I’ve seen, these facilities can get super high tech. You can like see your dog on your phone. there he is. He’s having a good time. But you can also do you know additional services that are offered. How common is that? Are these like dog facilities kind of vertically integrating in the dog space? You can come get your dog cleaned here. You can have the dog stay here. You can do training. Or do they tend to focus on one of those segments?

Robert Capelli (11:27)

So, yeah, so the main thing that you do see in all of these is, so it’s a flywheel, right? The door is the entry point and then you charge for extra walks or ice cream at night, dog-friendly ice cream, or if the medication has to be administered or training or grooming, right? The most common is grooming. They get a bath before they go home, right? And so you pick up your dog.

She smells great, she’s got a little ribbon on her head. You have a great experience. Then when it’s time to bring the dog back, you have that, but increases the value of that customer, right? Or that door by doing those. So you see grooming, training are the two main flywheel extensions of that boarding stay. And then you have these miscellaneous deals, which is administering medications or extra walks or extra playtime throughout the space.

Dylan Silver (12:17)

Now, for folks who are looking at, hey, I would like to open up a pet hospitality place, a pet hotel, this is a large undertaking when you talk about not just the staff, but then also having to be in charge all of the time. And then on top of that, you’re having to deal with, now there may be competitors coming into your space too.

What have you seen makes an effective operator? Is it someone who maybe has a background in this type of management? Is it someone who just loves dogs so much, so like, hey, this is my passion?

Robert Capelli (12:50)

Well, you have to love dogs, first of all, right? I mean, because that’s what you’re doing. We call it like rubber boots and a hose, right? So you’re with dogs, you got your rubber boots on and you got a hose. But it really comes down to what we see in the space, the best operators are people who love dogs and then understand systems, right? So it’s not rocket science, if you will, taking care of dogs, but it’s a lot of responsibility. So it’s all about the system, right? How do you make sure that it’s a clean,

Facility how do you make sure that the dogs don’t interact with other dogs to create some type of inner injury, right? And then the third part of that is how do you show attention to those dogs so that they have You know a good experience and when it’s time to go home They’re not depressed from not seeing their owner two three seven days out because we all know dogs are emotional Right and we can tell that change in that dog and when we pick them up So it really becomes somebody that understands systems

I think marketing now is becoming with Facebook and Instagram and TikTok, a skill set that is pushing you know certain operators above others.

Dylan Silver (13:53)

Yeah, how are people finding these? I know that for me, when I was looking at the two that I had seen, one in Massachusetts, one in Texas, I just drove by them and they had these huge signs and then my dog absolutely loved going there. So was kind of a no brainer, even if it was more costly than some other options. Are most people finding it online? Are they driving by?

Robert Capelli (14:15)

So what we call it is like a refrigerator magnet business, right? So remember back in the day when your grandmother would have like four or five magnets on the refrigerator and she’d say, hey, Dylan, go order a pizza. And it was from Joe’s pizza. And you dialed the number from there, right? It becomes a part of the community. And so they may find it by driving by. It may be a referral, right? Today it’s looking up on Facebook or Instagram or TikTok and seeing if they have a presence.

or they have a 1999 style website that’s been up for the last 20 years. But it really comes down to a good experience. You pick up your dog, she’s good when you pick her up and happy, then you’re gonna continue to go to that operator as long as they pick up the phone and have space.

Dylan Silver (15:37)

Now there’s some, and you mentioned this earlier on in the show, there’s some interest in like tech in this as well. mean, I’m amazed at how seamless some of these processes can be. They’ll have a whole app. You’re able to watch your dog. Like this is high level tech that’s happening here. How did this come about? Also, when people are looking at opening a facility, do they kind of have to partner with some of these?

tech companies in order to make that kind of experience happen or do these tech companies themselves look at, you know, launching these facilities under their own label?

Robert Capelli (16:12)

Well, I think it’s it’s kind of how you come in, right? The reason that there’s more tech or there’s more resort style. I mean, we have we see dog trackers kind of like the how many steps did they take that are put on so you can see the exercise that they’re having, you know, reports after they leave that you can read like, oh, you know, Muffy had a great experience played with, you know, chess all day long, like that’s our new best friend. There may be some pictures that are being sent. They have that 24 seven.

view right in there a live stream if you will which is probably started about 10 years ago they charge extra for those runs it’s an upgrade but it really is is where your experience comes in and it’s all to facilitate the want or the experience for the dog owner right the younger the dog owner the more tech that they want and so that tech is being introduced really to satisfy that feeling that the that the dog owner has

Dylan Silver (17:08)

As we’re talking about this, I’m realizing just kind of how much people love their dogs. Because you’re seeing all this stuff, you know, tracking how many steps a dog took, the interactions, you’re able to see the video feed. I sometimes wonder if people are putting this much effort into some of the other areas of their life. But dogs specifically, you know, hit a chord with people. I had mentioned to you before hopping on here, you know, my parents have a dog that’s had like both knees replaced and they just love this dog. They’re cooking him like meals in order to extend his lifespan. And so…

When we think about our pets, they’re truly a member of the family and we have separation anxiety, let alone the dog when we’re dropping off the dog.

Robert Capelli (17:48)

No, I this is, mean, there was a article out from South Korea. did a study in 2023, the latest, and the baby carriages that were sold in South Korea, 53 % of them were for dogs out of the total. And so, you know, there’s about 70 million households that have dogs. So that’s a large part of our culture is dog ownership, right? And, and so people are having kids a little bit later. These are their kids, 90%.

Dylan Silver (18:02)

Wow.

Robert Capelli (18:18)

humanization, right? So 90 % of dog owners believe that those dogs are really their kids. They don’t look at them as an animal or

Dylan Silver (18:25)

Now, I want to pivot a bit here, Robert, ask you a question about some of the lessons that you’ve learned in this space. And even just talking to you, I’m saying, OK, how come other businesses aren’t doing this? When we talk about things like being able to do additional add-ons, some of the experience element, even though you’re not physically there, you kind of feel like you’re there with your dog. This is a level of customer experience that probably other

segments can do more of. I’m actually thinking right now of, know, if you’re going to like a top golf, you know, you’re getting kind of this seamless experience from the time that you enter to the time that you leave and you can upgrade in so many different ways. But then our dogs are getting that level of experience as well, which is which is pretty remarkable. Do you think that we’re going to kind of see this tech trend of, everything that younger folks are doing

Gen X down below, you’ll start to see this ability to customize, but also to have more of a you know tech experience in everything that you’re doing, both for yourself, but also for those that you care about.

Robert Capelli (19:39)

Yeah, I do. mean, obviously there’s limitations to how much tech can be involved with the dog, right? So you see, know, step counters, which we all know it’s a wristband type experience, right? Those views. But I think what we’re seeing is better understanding of the dog coming in. So we created a proprietary AI technology, call them Kenny. And so he knows everything about the space, right? He can read through Facebook and Instagram.

and see how people comment on their dogs from you know the activities that they have or the concerns that they may have or the food that they feed. So I think the facilities, the kennel facilities, having a much better understanding of that individual dog is where this is moving. And you do that by collecting more and more information on the owner, first of all, right? And then understanding the breed or the mixed breed, if you will, of that dog so that you can facilitate a much better experience in something that the owner feels is

is individualized, right? And so this all goes back to the owner, right? This is where the space is.

Dylan Silver (20:41)

Another question that I have, and I’m not sure what your perspective would be on this, but dog travel doesn’t seem to have advanced very much. It’s still kind of difficult to travel with your dogs. Do you think we might see a change in that? Do you think there might be some dog travel friendly services on the horizon?

Robert Capelli (20:56)

Well, you used to be able to bring your dog on your flight, right? And then they would put it in cargo. And then that starts to get a little bit limited. But then it is where you’re going, right? If you’re going to a hotel or a resort for work, right? A work outing or a conference or you’re on vacation for a week, you have to have that hotel be able to be dog friendly, right? And so I think dog travel, I think every owner would want to take their dog.

it’s the, you know, the host, if you will, do they allow that dog friendly environment? And so I, you do see some upgrades in hotels and, and houses on Airbnb that, that classify themselves as dog friendly. And so you are seeing a little bit of that. And again, you know, a lot of people think of these as their kids, right? And so they want to be with them all the time. And, and for us, our experience is to create a space where it’s just like leaving them

Dylan Silver (21:37)

That’s right.

Robert Capelli (21:53)

with a relative, right? That’s the experience that we want. And so they feel comfortable, you know, nobody wants a person to be stressed out for 72 hours and then come back. So I think that’s where you’re seeing the spaces is you won’t see as many more traveling with them, but you’ll really see, you know, a peace of mind experience that’s coming through these facilities.

Dylan Silver (22:13)

We are coming up on time here, Robert. Where can folks go to learn more about K9 Investments or maybe they’re potentially interested in you know opening up their own pet hotel? How can folks learn more about what you’re doing?

Robert Capelli (22:26)

So, I mean, obviously Google is a great tool, right? You type a question in there and with AI now it answers it pretty well and points you in the right direction. If you’re interested in learning more about the space or investing in the space or borrowing to be in the space, you can go to canineinvestments.com and we put up a good amount of information in there. And you can always email or ring us on the phone and one of us will be more than willing to walk through what we do and share dog stories. That’s how we’ve grown.

to where we’re at currently.

Dylan Silver (22:56)

Robert, thank you so much for coming on the show here today.

Robert Capelli (22:59)

Dylan, thank you for having us. It was great to be with you.