Howard Katkov: CEO, Dirtbag Skier, & Leader

Announcer:

Welcome to Offshoot, the Fident Capital Podcast with host Kevin Choquette. Offshoot is a curiosity driven conversation that features a wide range of real estate business professionals. In each episode, we unpack the knowledge, vantage point, and domain expertise of our guests. Then we move beyond the facts and figures and dive into the personal habits and mindset which allow them to be high performers in their respective field. This podcast objective is simple, supporting entrepreneurs fostering relationships, and uncovering meaningful conversations that positively impact business.

Kevin Choquette:

Welcome to episode 14 of Offshoot, with Howard Katkov, CEO and co-owner of Red Mountain Resort in Rossland, British Columbia. Howard has started and successfully run seven different companies, and pulled a steady paycheck from them for more than 45 years straight. He loves the game of business and building successful ventures from vision through execution, with the support of a strong team. In this pod, we talk a good bit about all aspects of Howard’s background and spend a fair bit of time on the ski mountain and the ski industry. Two of my key takeaways are that you don’t always have the luxury of confidence in your decision making and yet you need to lead. The other, you need to truly understand the risks associated with your real estate deal, especially in terms of the time required to properly do the job. And that accepting a mismatch between the deal and the timeline of your investors is a recipe for trouble.

Patient money and autonomy matter. Secure it upfront, or pay later. Listen further in as Howard covers other areas, including being a rule breaker, not a rule maker. Balancing the interest of capital and community, while being a steward of both. The fact that pound for pound, there’s no better ski location in North America than Red Mountain Resort. Building teams as a partner and less of a conventional top-down boss. Removing inter-department communication walls, picking your investors carefully, letting younger team members influence the direction of the company when they reflect the sentiment and sensibilities of the target market, having humility and listening and observing to fill in your understanding, and never looking back with regret. Instead, looking back to learn. I hope you enjoy the pod.

Welcome everyone to another episode of Offshoot, the place where my wanderings through the world of real estate finance allow me to engage remarkable people in freeform conversations on a range of business and personal topics. Today we’ve got, as the Aussies would say it, an absolute legend. Howard Katkov is the CEO and owner of Red Mountain Lodge in Rossland, British Columbia. Based upon his long and winding career, Howard strikes me as an entrepreneur in love with creation, business and adventure. In his early career, he started a law practice, which remains active to this day. Then a successful San Diego residential development company that delivered over 3000 homes and took San Diego’s number four spot in only five years. He then started the cosmetics company Jane, selling it to Estee Lauder just a few short years later. From Estee Lauder, he took a CEO role for a tech company. And then in 2004, he and his partners acquired Red Mountain Lodge.

To put it mildly, Howard has tons of experience. He’s a former member of the state bar of California. He secured his undergrad at the University of Nevada at Reno and JD from Cal Western School of Law. He’s also blessed to be the father of four, grandfather of two, and has another grandbaby on the way. I met Howard quite recently through a mutual San Diego friend on the occasion of a property specific capital raise for new condos at the base of Red. After just a couple conversations with Howard and the CFO, it became clear that a visit to Red was in order. That trip pretty much blew my mind, as in these places still exist? Visiting Red’s like going to Alta or Snowbird, when there was only one or two brand new accommodations at the base, and few enough skiers to make the development of that kind of real estate hold some material risk. It’s like going back 70 years to the way ski mountains existed before they began shifting to resorts, catering to all sorts of people, even those that don’t ski. I loved it.

Beyond the mountain and the community, which were generously unpacked by a drive to the summit and an early mountain bike tour, both led by Howard, I was really intrigued by Howard and his story. I’ll restrain myself from giving you the short version and the absolute nuggets contained therein, because I’ve got Howard on the line. Howard, welcome to Offshoot.

Howard Katkov:

Thank you Kevin. It’s nice to be here.

Kevin Choquette:

Yeah, look, I know you’ve got an incredibly rich background, and if there’s any risk here, it’s probably trying to cover too much in a single conversation. But as they say, every journey begins with a single step, and this one candidly, I think is more about the journey than any particular destination. So to start, could you just give me a bit of background on yourself and Red Mountain Resort?

Howard Katkov:

Well, background on myself. I was born in Southern California in 1950. Grew up in Palos Verdes in Corona del Mar and discovered surfing in the sixties when it was really an outcast sport, not mainstream aspirational sport. And that was quite a deviation academically until I started to focus on getting my app together as an adult, when I turned 18. And I ended up in the mountains in University of Nevada Reno and fell in love with the mountains at that time. Started skiing and just appreciating what the alpine meant to me, to my soul. And ended up in San Diego in law school, just as a happenstance. I was scheduled to go to University of Virginia but fell in love with a girl in a small town in Nevada, and ended up moving to San Diego. And I graduated law school, but that relationship didn’t succeed. Fortunately, I’ve now been married 44 years with the same woman, Tracy, with three sons and one daughter. Two grandsons, and another granddaughter on the way. I have been working consistently since 1976.

What I mean by that is, I haven’t had a month that has gone by without a paycheck. Not necessarily proud of that, but I have been pretty focused on being an entrepreneur in some very diverse and unrelated categories.

Kevin Choquette:

Yeah, in … No, go ahead. Go ahead.

Howard Katkov:

So if you want to start from where I am today, in 2000, actually in 1995 when I owned a cosmetic company, I had some reps from the Southeast that would have an annual ski trip to Vail, Colorado. In 1995, the first time I showed up there, I met a guy named Jack Carey who was six foot seven, weighed 165 pounds, and had a white ZZ Top beard. And he was our quote, ski instructor. He had lived in Telluride, Colorado for the last, at that time, 33 years. Ran the movie theater in Telluride. Lived actually, behind the movie theater. Chopped wood for movie stars in the summer. And he was a quintessential dirtbag skier. And he had told me, this is from 1995 to 2000, about Red Mountain. He was from New Hampshire and his line was “Howard, you got to go to Red Mountain. It’s the greatest ski resort in North America.”

And for five years we skied together. He was our quote, teacher. But he was really my powder buddy. He and I both are first chair guys, and we got to become close friends. So finally in February of 2000, I came back from this annual trip and told my wife, “We’re going to go to this place called Rossland. I came back on a Sunday, we flew up there on a Friday. I went online and saw a woman that looked like a nice person named Artis Erquad, said, “I’m looking for real estate.” Trounced around the town that day and it was raining, and I didn’t even ski. And looked at a lot of old houses and I said, “Is there anything else up here?” And she goes, “Well, there is this 18 lot subdivision that the guy went bankrupt on years ago, but it’s got sewer, water, street lights, all the utilities.” And I went, “Well that’s interesting.” So I went and saw these lots that were just in the center of this town, and bought three lots sight unseen and drove home.

Looked at my wife as we were driving back the next day and went, “Well, that was random.” And we started building a house that September. So I went up there principally and entirely to build a retirement home for my family, because skiing was embedded in our way of life. And that was the beginning of Red Mountain.

Kevin Choquette:

And then as I understand it, something happened there. At that point it was community owned, right? The mountain was?

Howard Katkov:

No. So the mountain is the third oldest ski resort in North America, the oldest in Western Canada. So it started in anywhere between December, 1947 and February of 1948. That’s slightly debatable. But it certainly is the third. And it was owned by the community until 1986.

Kevin Choquette:

Okay.

Howard Katkov:

And in 1986 a group of six guys bought it. Local people, except one bond guy out of Toronto. And while I was framing the house, someone said, “Did you hear the ski resort’s in a bit of trouble?” And I did not know very many people at the time. One of the six owners had died, one of them was on dialysis, and they were just getting old. So I put together a group and had a couple shots at it. The first shot, we weren’t successful. Someone from back East had it under contract but then fell out. And I finally put it under contract in September of 2003. And my first career as a real estate lawyer for eight years was an real estate entitlement lawyer. So my partner and I then flipped. We actually amended the official community plan in September of ’03, and closed escrow in June of 2004. And we changed the entitlement from 400 units to almost 1400 units and then closed.

Kevin Choquette:

Okay. So what’s happening for you guys now? I mean that’s obviously a long ways back and you’ve been at it since ’04.

Howard Katkov:

Long time. I’ve passed my retirement age at least three times, if you talk to my wife. We have had, I mean just 18 years in a nutshell, the first three years of our ownership was the time, crazy real estate times. The Boomers were buying real estate all over. Second home real estate at golf courses and ski resorts. And we enjoyed the wave of that. And I built a 67 unit project in 2006 and ’07. We sold land to developers. Actually, coming out of the gate, our first three years were way over our proforma, and things were good. And then 2008 showed up, and we had actually completed our 67 unit project. We closed enough units to pay off our bank, and we all know about 2008, and ’09, and ’10 and ’11. So what I learned in my real estate, 10 years of real estate development in San Diego was, debt is a killer.

And if you’re over-leveraged and the economy changes, and guaranteed if you’re into real estate, you’re going to have an experience of a down cycle at least once, twice, three or four times. In my case, I think this is my fourth time seeing a down cycle. So I made sure we had low leverage in this construction loan, had high pre-sales, and we endured the recession. And coming out in 2013, I opened up a mountain … We have five peaks, so we are the ninth largest ski resort in North America. We’re 3,850 acres of skiable terrain. And in 2013, we opened up one of our five mountains called Grey Mountain, which is a thousand acres. So it’s the size of Mount Baker with one single chairlift, skiing 360 degrees. And that was the largest ski resort expansion of an existing ski resort in over 45 years, at the time.

And that was a big deal, that put us on the map. And we started to see visitation increase pretty significantly. And from 2013 on through kind of ’18, ’19, we were focused more on our operating company, as opposed to real estate. Because real estate hadn’t really come back in any great volume. I did do a 73 lot subdivision that right now, is about 75% sold out, and some beautiful homes. But we hadn’t really put our toe in the water for another significant piece of housing, large housing, until this last year. So our focus has been building our brand, building our awareness. We’re an eclectic mountain in terms of visitation. We have 40% of our ski visitation is US and international and that continues to grow. And with just the consolidation of ski resorts through Vail Resorts in Alterra Mountain Company, it has changed the landscape pretty significantly, in relation to the ski experience, i.e. crowds and lack of services to handle these crowds. Our resort is becoming even more noted for still an incredibly great ski experience, from the moment you drive up, to the moment you leave.

Kevin Choquette:

And you guys just started the newest real estate project there. It’s what? A hundred units?

Howard Katkov:

102 units. So in December of 2020, I had this idea that it was time to build another significant project. And the way I do real estate development, in terms of minimizing your risk, which is my focus now. There’s always risk in real estate development, but you can minimize it. So my formula is that I raise enough money to take a project to market, which includes all design development, all sales and marketing, and all the other associated things to get through legal, to have the ability to put a project for sale in Canada, which is different than in the United States.

Kevin Choquette:

To be able to do pre-sales, right? Take hard deposits and all of that?

Howard Katkov:

Correct.

Kevin Choquette:

Yeah.

Howard Katkov:

Correct. But that requires full design development. Because when you take pre-sales, you have 50% design development of your working drawings, so a consumer knows what they’re getting. And you cannot change the documents that describe those more than, call it 5%, or they would have a right to rescind their contract. So you have to be quite complete, in order to go out to the market. And what I had been noticing obviously, is how expensive real estate was in major ski resorts. $1,500 a foot, 2000 a foot, $1,200 a foot. But in locations that certainly aren’t ski in, ski out anymore. And if they are, they’re just extraordinarily expensive, pricing out most people, the average person. And so watching what was happening in urban areas, particularly Vancouver, Toronto, San Francisco, and New York, small units, studios, lofts that are averaging 500 square feet. So I had the idea of taking this loft concept to our resort, at a location at the base that was 37 steps, 50 steps to the chairlift.

So incredible location. And we went to market in February 10th of 2022. And we sold 70% of those within the first three weeks. We’re now at 80%. And we broke ground on June 24th of 2022, and will be completed in the fall of 2024. And in terms of the risk profile … Back to my formula, so to speak, is I raised a million and a half dollars to get us to market, and get pre-sales that are sufficient enough to satisfy a construction loan. And that was 70% of the construction loan. So this is a 46 million project, it’s a 30 million construction loan. So we actually needed 29 million dollars of pre-sales. So we got those pre-sales within those first three weeks. We’re now at 35 million in pre-sales, so we’re significantly higher. So that was kind of risk point number one. If we would’ve failed in that, then that investor, we had three years to kind of hit that goal. If not, his investment was secured by that piece of property. So his risk was not extreme.

Then the next point was, we got our construction loan and we had the pre-sales, and off we are. We have two more winters to sell 22 units in. I have no doubt that we’ll do that. Since September we’ve sold 10 more units. And the average price point Canadian was 354,000 a unit. The average square footage was 444 square feet. The largest units were 700 square feet. We had lofts that were 600 square feet. Quite a … go ahead.

Kevin Choquette:

Well I imagine it depends on your perspective, in terms of either that’s incredible value, getting in for 354 Canadian, which I think it’s roughly .75, if you want to translate that to US dollars. Or maybe if you’re a long-term Rossland local, they think you’re crazy, and getting these prices that they can’t believe. How does that all shake out, in terms of the dialogue around the price point? And obviously the market has voted, you’re 80% sold.

Howard Katkov:

Well, it’s interesting. The people of Rossland were shocked that we’d go out there with such a large project. It’s the largest condominium project ever built in the Southeast [inaudible 00:21:04] for sale. It’s probably one of the largest, I don’t know how many hundred unit plus condominium projects have gone to the market in any top 10 ski resort in the last 10 years, frankly. Principally because they don’t have the land to do it at this kind of location. I mean at Squaw Valley, they had a building that they tore down, kind of in that lower parking lot, to build something. So I have two people, one who runs events for me, and one who runs high performance rental, that are buying lofts on the top for their own personal home. We probably have 10 or 12 sales from local people.

I sold a unit last Saturday for a thousand dollars a square foot. And we’re now, it validates the quality, the location, and the value proposition at an epic ski resort, now coupled with a pretty incredible real estate value. In the US side, I have 25% US visitors typically, 15% international. Our US buyer profile is now 60% US buyers for this project.

Kevin Choquette:

Oh, that’s interesting.

Howard Katkov:

So the opening price for a US buyer for our smallest lower floor studio was 263,000 US. It’s just not possible to find that anywhere in a top 10 ski resort in North America.

Kevin Choquette:

Yeah. So right now, I mean obviously you just launched the 102 unit project. What’s next? What are the challenges you guys are navigating? What’s on the horizon? And feel free by the way, to talk about the mountain. Because I think, well I know that a bunch of the listeners, for whatever reason, also are skiers. Maybe there’s a high correlation between real estate and skiing? But I think what you guys have is remarkable, in terms of place. And I don’t want that to be lost here and just getting overly business. But what’s next on the horizon? And how do you think about managing the resource that is Red, be it investor capital, land, community, the skier experience. It’s a very dynamic environment that you’re navigating.

Howard Katkov:

It is. There’s a lot of pressure on economic growth and maintaining the history, the heritage, and the ski experience that is second to none. So if you just want to talk ski experience, I showed up in 2000. I have skied two ski resorts for one day each since 2000. There is not a better ski resort, pound for pound, in North America. And I’ve had people who have skied the world. Fisk racers, Olympians, big mountain snowboarders and skiers. And after a powder day with us, their quote was, “That was the best powder day I’ve ever had at a ski resort in my life.” I can’t tell you how many times people have told me that. So we started as a ski town. USA Today has ranked this the number one ski town two years in a row, the last two years. We have New York Times put us in the top 40 places to visit in the world, ski or otherwise. We were number eight in I think 2015.

Skiing in this resort is like going to a park with your kids and just hooking up with people and having a day with no anxiety, knowing that on a good powder day you can show up at noon and ski 20,000 feet in a few hours, untracked, the first day. And it’s because we are so large, and because of the topography. So we’re 3000 feet vertical. We have five mountains, three of which are 360 degrees of skiing all the way around. So we have been ranked number one tree skiing in Canada for pretty much every year. We tell people skiing at Red, it’s like cat skiing or heli skiing without the cat.

Kevin Choquette:

The cat or the heli. Yeah.

Howard Katkov:

Yeah. So I mean that piece, and then the community piece. This community has been around for 130 something years. It’s an old mining town, not unlike so many. Park City and parts of the Sierras. But the community is extremely proud of this mountain, and extremely proud to show any visitor the mountain. So on a powder day with a lift line, there’s no anxiety. We’ll typically pass out cocoa if the blasting is continuing, avalanche control. And people are happy, because they know, once they get on the mountain, they’ll be baked by one o’clock. And so the relationship that we have with our customer, that is the people who live in this resort, in this community of Rossland, is incredible. You can go there as a single woman or man, and I promise you, by the end of the week you will be with someone, at their house, and/or having dinner with them, guaranteed. It just happens time, and time, and time again, because people are engaging. And you know, at a major resort on a powder day, that could turn 30,000 visits in that day, it is not mellow.

Kevin Choquette:

No.

Howard Katkov:

And there are lift lines, it’s expensive, and it’s just not relaxed, not relaxing. So I have no issue with those places. They’re my partners. I’m a Ikon member. But I’m just saying, you juxtapose that kind of big urban experience to what we have, you’ll never be the same once you come here.

Kevin Choquette:

Well, and so how do you …

Howard Katkov:

Maintain that?

Kevin Choquette:

Yes. Because I grew up in Durango, and even back in the eighties there was two bumper stickers that I recall. Last person to leave Durango, turn the lights out. And call someplace paradise and kiss it goodbye. Right now, fast forward 40 years, Durango is still a lovely community. And yes, it’s changed a lot. And there are things that I’m sure those who wish change never happened, have disappointment over. But how do you have that kind of playpen, if you will, in terms of the natural resources, and the pressure on it. And then be a for-profit enterprise, with an eye to preserving the culture and being a good steward of the community. And I mean yeah, there’s other ways to play this game with really large buckets of capital and just go large. And it doesn’t seem that’s the way you guys have approached this.

Howard Katkov:

So it’s a balance. First of all, I grew up as a dirtbag skier, and deep down I still am. And so selfishly, we all want to maintain what we all love about Red Mountain. And what I’ve proven in the last, over 18 years now, is that you can do it. I call it developing assets, or creature comforts. But I call it creature comforts under the radar. And so you have to start with a vision. And the vision is, that you need to be economically sustainable, obviously. But what I’m proving, is that you can be economically sustainable, yet not disenfranchise your community, or leave, or drift away from your core values, that are so important to you as an individual, and as a fiduciary, as the CEO of this place. In other words, I have fiduciary duties to my investors clearly as we all do. But I also have fiduciary duties to this community that I have adopted, because of my own choice, and the choice of the people that work for me.

Kevin Choquette:

So how’s that show up?

Howard Katkov:

We’re all the same.

Kevin Choquette:

I pull up with a, well either an offer to buy it, buy the whole thing from you. Or, a hundred million of equity ready to deploy, because there’s enough economics that could support that kind of investment. I hear what you’re saying and I think it’s admirable, and I think it’s a really difficult balance. But how do you respond when things come forward, which I’m sure they do?

Howard Katkov:

Yeah, I’ve had a couple that have come forward. One case in particular, where the individual who is interested in just the operating company. So just to give you some context, we have still buildable real estate and a retail value of 900 units and about 1.3 billion left to build, comprising 22 different projects, most of which are at the base, are in the mountains. So incredible real estate. But a lot of people aren’t real estate developers. So I’ve had people approach us for the operating company, the ski ops.

Kevin Choquette:

Mm-hmm.

Howard Katkov:

And one guy in particular mentioned me, “What do you think about taking down the day lodge? ‘Cause it’s got this old center core?” And I said to him, “That’s a good way to be struck down by lightning, and/or have the town hate you for the rest of your life.” So that person just didn’t make it. And on a price that was not that far away. So how do you protect it? Let’s say someone comes in to buy the ski co. We would put covenants in there that the ski lockers in the rafter lodge, they cannot be taken down. Protecting that. But once we sell, and there will be a point where we will sell, there is an element of risk. Once you lose control, you lose control. You don’t control pricing, you don’t control what they develop. But just on the real estate side, we have 90 pages of design criteria that controls what can and cannot be built, that is now part of the city’s zoning.

And that will protect at least that piece on the real estate side. For instance, you can’t build a condominium at the base without underground parking. Because ultimately, our master plan is, there’s probably 5, 600 units left to be built down there, plus another hotel. It will be a complete pedestrian community with maybe 200 parking places for the summer activities, with all parking put across the highway. So someone can’t come in there and just bulldoze that concept. That’s part of the official community plan. That’s part of our zoning. In terms of the ski op piece, I’m not going to tell you that down the road someone might have a different idea of how to manage this business. But I think we have certain things in place that will at least protect some of it. You can’t protect it all when you sell.

Kevin Choquette:

Yeah.

Howard Katkov:

But I didn’t come here to basically stretch myself across the freeway for the rest of my life, protecting the ski resort. But I certainly have spent a lot of years and a lot of energy doing the best that I can, and my team can. And I think we’ve done it. The community loves us. The city, our relationship with the city on the real estate side, we have never lost one zoning request, development permit, change the zone. We’re a hundred percent in 19 years.

Kevin Choquette:

And do you think all of your experience previous to this, going through the legal background, the home building, and even into the sale of a cosmetics company to a public, I believe Estee Lauder’s public? Does all of that inform the day-to-day? I mean, but obviously it does. But I guess the question is, how do you navigate all of that varied terrain, right? I mean you’ve done a lot of different things over the years.

Howard Katkov:

So I’m a mutt. I’m a collection of mutually exclusive businesses. Law practice, real estate development, cosmetics, digital marketing, concierge services, furniture company, ski resort. Some of which were grossing well over a hundred million dollars a year. So I’ve run some big businesses, I’ve had a thousand people working for me. Each time I’ve started a business, I’ve had no background. So my advice to all of your listeners, don’t be afraid of that. Just head down, learn your category, make quality decisions, and surround yourself with people that are as smart as you, and be a good listener. And so for me today, how do I maneuver it? I’ve been working since 1976, so 24, 34, 44, 46 years. And I still learn all the time. I learn from people who work for me. I learn from reading and witnessing what’s happening in our world, what’s happening in this category. I’m always a student, and I never think I know everything. But the way, I have confidence that I’m a good CEO for this resort.

And that confidence did not happen the first two, three years. I mean truly in my personal life, I didn’t feel confident about my decisions, until after I was 50, and I sold my cosmetic company to Estee Lauder when I was 47. So it took me 25 years to really feel secure in my decision making process. Because when you’re the CEO, and I’ve been a CEO my entire life, you have the ultimate and final decision making authority. And that comes with responsibility, and it also comes with listening to your team, and consensus discussions. But there are times where I make decisions still. Quite a few, that I say with all due respect, we’re going this way. And so the ski resort business is, it’s not complex like the cosmetic business, I will tell you that. Some of the worst things about this industry is, things that are out of your control. Snow.

You can do everything right, as you know, and have a poor December just because Mother Nature didn’t show up. And it impacts your PnL dramatically. Those things are hard for me to take, because I tend to like to control my world. But in terms of the operating company, I still run sales and marketing for this resort. I have brilliant young people who report to me, but I still look at the copy of everything that comes out. And I still run all the revenue department of this operating company. And the real estate side is, it’s stressful just because as you know, I mean this is your business as well. You know what developers have to go through. But it’s not, I have a lot of confidence in real estate development, because I’ve done it for a long time, since 1984.

Kevin Choquette:

Well I also think that you, based on what you just said in terms of risk mitigants and managing downside variants, I mean it usually is the case that people who’ve lived through a severe cycle or two know how to keep a reasonable chip stack on the table, and not shove it all in. I think that’s a big part of your success. But I want to go back to what you just said, about this idea of pre-50, maybe not having the kind of confidence in your decision-making that you do now. In all of those years, and/or scenarios that would’ve predated that change, what then did you do? If you didn’t have the confidence, and yet you were running a 3000 home development company, or running a law practice, or driving a VC backed cosmetics company, how were you navigating it, with the condition that maybe you didn’t have complete confidence in your decisions?

Howard Katkov:

Well I kept that to myself.

Kevin Choquette:

Yeah, sure. But you still had to make the decisions, right? You still had the-

Howard Katkov:

I made the decisions. Leaders have to lead and they lead by example, and my team knows it. Nobody works harder than I do. Nobody gets up earlier than I do. They go to bed a lot later than I do. But a leader has to be out there with confidence, because I can tell you, just being a CEO my whole life, if I just burped the wrong way, my team was, “Oh, what’s wrong? Okay, what’s going on here? Something’s wrong with Howard, he didn’t smile today.” So you have to, on the front end, however you feel that day, and particularly if it’s not a good day, you cannot express that to your team, ever. And I never do. I mean, if the shit has hit the fan, excuse me, and it’s something we obviously have to talk about, we talk about those things., but I can never show weakness, in terms of my confidence in our ability to take a challenge.

That’s just my philosophy. So in those pre-50 years I would do things that some people would say I was crazy. Like for instance, starting a cosmetic company when there was no need for a new cosmetic company. But I saw a void in … so that was 1993, where Christie Brinkley was 40-some years old, and the spokesperson for CoverGirl, and that was the only really strong teen brand out there. And I said, “I think there’s an opportunity to start a new brand in mass market.” So did I have a hundred percent confidence in that decision? No. I went to probably 20 VCs who said no. And then I went to a final one who had just financed … oh, I can’t think of the airline. JetBlue and a few others out of Silicon Valley. And they said, “We love this idea.” So you never have a hundred percent surety when you start doing anything. Buying a ski resort, I had zero background in that. But I felt that … I mean, that one was a more disjointed decision actually. That was never on my wishlist.

Kevin Choquette:

Right. It just happened. But on this topic here, my brother’s in the military and I’m pretty sure he and I have had the discussion around courage, and that courage isn’t a lack of fear. Courage is fear with the conviction to be in action.

Howard Katkov:

Exactly. I love being in the game. I love my dad. My dad taught me something, be a rule breaker, not a rule maker. I like disrupting categories, because I’ve learned, I got really interested in marketing in San Diego where I recognized that all these Boomers, myself were all starting to have kids. And no one was really capitalizing on the move-up market, and I did that. And I did it with a voice that resonated. And that’s how we got so successful so quickly, in that real estate company. And same thing with cosmetics. I recognized a void and created a unique voice. I think our tagline was, everything great about being a girl. Another one that was quite edgy is, you got a mouth learn to use it. You saw my campaign that for this winter for Red Mountain, welcome to the good life.

Kevin Choquette:

Yeah, it’s brilliant.

Howard Katkov:

So I mean, I like being in the game. And frankly, I’m not so sure how I’m going to function when I’m finally out of the game, which I know is inevitable. So I think that the courage piece, there’s courage, and there’s also huge responsibility. And the huge responsibility, it weighs heavy on me. Money that I bring in from people, it’s a huge responsibility. Decisions that I make with regard to this community, it’s a huge responsibility and I don’t take it lightly. So back to your question is, what happened at 50? I think my track record was starting to speak for itself when I said, “Hey you know what? I think my judgments are pretty good.” And I’ve had my kicked a few times too. It’s not like it’s been a Cinderella story, especially in real estate. When the cycles go 2000, well 2019, or actually 1990. 1989 was an amazing year, 1990 not so good.

But I learned how to extract myself from bad situations as well. Which is also something that is intense, but it’s part of your skillset you need to have, which is how to get out of trouble, and how to manage risk. Now I’m mature enough now, to know how to manage my risk going in. Because when you’re 40 years old, when I was 40 years old, I had a lot of exuberance and confidence. And I think I had this statement once when we were, I think a hundred million outstanding in real estate loans in 1989, saying we borrowed so much, I mean obviously no one’s going to ever go after us, ’cause we can’t pay that back. Well, that was stupid, at the time. So those things, those don’t resonate with me anymore, through maturity.

Now it’s married, you’re married, you have four kids, you have grandkids, you’re in the fourth quarter of your life, manage your risk. And manage your risk for your investors as well. I mean, I look at my investors just as if they were … my responsibility to them is the same as it would be to my family. And I think people appreciate that. Yet they still go in fully cognizant of the fact that, especially in real estate, things can change dramatically.

Kevin Choquette:

There’s so many things I can jump on here, but I’ll try to keep us moving in a general direction. Just listening to you talk, I’m scribbling down all these notes that I want to open up further. But I hear what you just said. Treating an investor, or thinking of an investor as somebody that’s akin to family, how does that show up for you? Because they’re always to me, in an imperfect capital formation, you end up with these synthetic tensions that are a result of the contractual agreement, that make it so what might be good for you, and what might be good for your investors, versus what’s good for the project in the marketplace are not the same thing. And it’s because there’s been some written word and expectation around timelines and return profiles. And then you have something like what the Fed’s doing, worth mentioning. It’s November 4th, 2022 and I think the prime rate now is 4%, which is up several hundred points from the beginning of the year.

How does the idea of treating an investor like family show up in a real world instance, so that you don’t have to maybe face those same sorts of foreseeable tensions?

Howard Katkov:

Well the foreseeable events are beyond anyone’s control. So the first thing you do is you start out with a group that fully understands what they’re getting into. That you don’t just talk about the upside, you talk about all the things that can happen. And so they know going in that they could lose all their money. But I never have capital calls in my partnership, so they have exposure that’s limited. So the first thing is, that they understand the pluses and the minuses. The second piece is, that I have to maintain control over situations that go south, and have a document that supports me. And therefore, these investors have to trust me implicitly, to think that I’m going to do the right thing. Because it’s going to be decision making that is beyond their influence, and/or contribution. They’re trusting the GP, me. And the third piece is that I communicate with, I usually have a small group of investors.

Even in the Red Mountain we have 22 total. But four have 85% of the money, one has 80% of that. And this was a guy I didn’t know at all 18 years ago and he’s one of my dearest friends now, trusts me implicitly. But he also understands that sometimes things happen and you have to make tough decisions. So you better pick your investors carefully, because things can go south and you’ll have to make decisions that can ultimately impact them. And I’ll give you an example. I had a project that I think the IRR was almost 50 at the time. And the recession hit and I had paid the bank back, and I still had 25 or 30 units. And I went to my group and I said, “I’m taking this, I’m cutting the retail in half. Because I think we’re going to be in this thing for a long time.”

They agreed. They didn’t have a choice, but they knew I was going to do it, and I sold those units out in three weeks. They ended up getting back 75% of their investment and a tax loss that got their money back a hundred percent. And I did that quickly, because I’d been around a long time with trust. So I at least have the power to do those things. And I didn’t disenfranchise any of them. I had a situation with a group, where at the time and where people were getting preps. 9, 10, 11% preps. And then a partnership with a 17 million dollars accrued prep in it. And I went back to this group and said, “Look, I can’t go forward with this accrued prep, and you have to waive it.” But because of my personal relationship, they waived the past prep and waived any future prep. That allowed me to raise future capital.

Kevin Choquette:

Well, so look, you’re talking about something really-

Howard Katkov:

My investors become, they’re not just money, see you later. They tend to get engaged with the project, and I allocate time for these investors. And it’s not overwhelming, but when there are things that have to be discussed, I make sure that they’re not surprised, even though they don’t have the vote. So I mean, I don’t know if that makes sense to you?

Kevin Choquette:

No, it makes perfect sense.

Howard Katkov:

Or if I even answered that question?

Kevin Choquette:

Yeah, it makes perfect sense. So Howard, you’re talking about raising a very specific type of capital, which I would call friends of family money, or country club money. Which isn’t to suggest that it’s unsophisticated, but that it is different than institutional capital, where quote/unquote professionals have gone out, raised a bucket of capital. They have a mandate under a certain time, certain to produce returns. Their whole value prop to that investor base is that they’re better than the competitive set in delivering attractive risk adjusted returns. I think you know the money that I’m talking about quite well also. But how do you overlay what you’re doing with other types of capital, call it institutional capital or otherwise, that won’t allow you the kind of autonomy that you were just … and patience it sounds like. There’s some autonomy, and there’s some patience. What money won’t you take?

Howard Katkov:

I won’t take money that has very sharp teeth.

Kevin Choquette:

Yeah.

Howard Katkov:

So I’ve had venture capital, Silicon Valley money, that had obviously mandates in their funds and returns. And my investors in Jane Cosmetics, the second group which was institutional venture capital, they were in this deal 20 months. So they had a four and a half X in 20 months, they were pretty happy. Although when I got the offer from Estee Lauder, they told me, “If we’ve only been in this thing 20 months, they usually have a four year horizon.” But I felt this was really a good offer and convinced them to take it. And actually, had to give them another million of return to get it done. But today I have a completely different mindset about raising money and how to treat those investors. And you’re right, that I can’t go to a fund that is trying to get 20 IRRs, and in short periods of time that have a lot of involvement in my business. And there’s nothing wrong with those guys, it just doesn’t fit my profile. But on a real estate project, it does fit my profile.

If an investor came up to me institutional and said, “Look, I’d like to take a run with this. Put up the seed capital and if you hit those bogies, I’m in.” I have no problem with that.

Kevin Choquette:

On a single deal? Let’s go build the next phase of development at the base?

Howard Katkov:

Correct. On a single due deal. But in like a ski resort, I mean put it in context. Roger Penske was one of the major investors of Deer Valley and he was in that deal 48 years. And he obviously was patient capital. My main investor is patient capital, because we’re growing the value proposition. It’s taken a long time. I can’t tell you that I ever thought I’d be in this 18 years when we bought this. The longest time I was ever in a deal was cosmetics and that was 10, but even though I sold it after four, not even. But I worked for Estee Lauder for three years. So this one is an anomaly for me, and it’s also an anomaly in terms of what it is. It’s not just a business, it’s a business that’s joined at the hip with the community, that I value, and respect and honor. And it’s probably not the easiest thing to manage, because sometimes you make decisions that skew towards that community, that other people would just say whatever. And that’s just not who it is and who I am.

Kevin Choquette:

Do you view the, I’ll say mismatch between the business case that is Red Mountain Resort? By the way, I said Red Mountain Lodge before, Red Mountain Resort. In terms of it’s a slow boil, right? It’s a patient approach that you, as the head of that business, are executing. Do you view the capital mismatch as opportunity, or impediment? Not being able to go get the high IRR, high active management style from that kind of capital?

Howard Katkov:

Well it depends. I mean this real estate project, the IRR is 46%, The Crescent. That’s a good IRR.

Kevin Choquette:

Yeah, that’s a great IRR.

Howard Katkov:

The ski op company, it certainly has been a slow boil. But it’s taken us, we’ve stayed patient and steady with our vision and we haven’t deviated. In the two thousands, in 2006, ’07, when the capital was just flowing into the ski resorts, we were criticized at, “Why don’t you have more of this? Why don’t you have more high speeds? Why don’t you have X, Y, and Zed?” Then today as we sit here, they’re all built out. We all understand how the experience at some of these resorts that have populations of 3 to 5 million within, or 20 million for that matter, within five hours, six hour, seven hour drive. And our international airports. It’s really taxing the infrastructure and consequently impacting the ski experience. Not to mention the expense of it. What we have now is, we are now current hip and cool, and surprising people like yourself. And therefore, the consequences, or the impact is, for instance, our real estate value. Our real estate holdings have quadrupled on appraised value.

Not on all of our properties, just anecdotally if you take a couple of them and extrapolate them out, by over 4X. So our patience, and not only is it increased in value, but it’s increased in demand. That communities like this, and resorts joined at the hip to communities like Rossland are becoming extremely attractive.

Kevin Choquette:

Mm-hmm. So-

Howard Katkov:

And therefore-

Kevin Choquette:

Go ahead.

Howard Katkov:

And therefore today we are very relevant, very current, and not as a company that is behind the times, but a company that is ahead of the curve.

Kevin Choquette:

Yeah, I see that. You talked about it early on, that you guys have become a partner with Ikon. And my view of the that whole, I’ll just say transaction, where you buy your 24 hour fitness membership and you’ve got unlimited access, or slightly restricted access, to a massive web of ski resorts, definitely strikes me as the best of times, the worst of times. The value prop for the buyer is insane. You can spend $900 and you can go ski whatever it is, 17 different mountains, depending on which of these you pick. But we all know the downsides, and the Instagram lift lines that are three hours long at the base of Vail, and all that sort of stuff. How do you view this phenomenon? How do you parse good from bad? And how do you guys reconcile hopping on the bandwagon and getting in the Ikon?

Howard Katkov:

I chose carefully. I did a campaign called Fight the Man, Own the Mountain. That was the first crowdfunding of a ski resort ever in the United States and Canada, and the first cross-border crowdfunding ever. We did it about four years ago. And two weeks before I launched Vail Resorts had bought Whistler. And I did it as kind of a fluke. it’s too long of a story how I got into it. But it became very successful. We raised several million dollars and ended up having 820 non-voting investors who own our resort and couldn’t be happier. And the average investment was 3,500 bucks. So I was kind of the anti-Vail through that campaign.

When Alterra showed up, it was clear that this world was going through a paradigm shift with these passes. And to your point, it’s too good of a deal for the consumer. And I now had Revelstoke, which is four hours from us, became an Ikon partner. Big three became an Ikon partner. And I know today we have the capacity to bring in some more visitors. And I felt that I had to choose one and not to be left out. Because I’m confident that notwithstanding an increase in visitation … and it’s ironic, I mean the year we signed up with Ikon, the border closed. And with Covid and the pandemic. So we haven’t even had a chance to actually see the benefits too much. This year we will. But I’m confident it’s not going to interfere with our ski experience, and actually provide a lot of joy to these Ikon members who are going to come to Red Mountain and say, “Wow.”

So it’s going to build our awareness, but we still have the capacity to handle all of the pressure points that interfere with the ski experience, starting with parking, then the lift lines, the pricing. I mean our lift ticket today, the ninth largest ski resort, US dollars, is a hundred bucks. And we have two other mountains that I can put chairlifts on, in case our quote, lift lines become a problem.

Kevin Choquette:

And are you guys unlimited Ikon? Or do you have a seven day thing? I think Deer Valley is-

Howard Katkov:

Yeah, we have seven days.

Kevin Choquette:

Okay cool.

Howard Katkov:

And they’re good. There’s some good resorts there. The management is good. And for us, this will be the first year that we’ll really see what Ikon’s all about, because the border’s now completely open, and you don’t have to do anything to show up. But I just felt that I couldn’t be left out anymore. And since then now, Panorama, which is within our region, Schweitzer, which is three hours from us, is now an Ikon member. Obviously Crystal Mountain in Seattle, Mount Bachelor. And so we’re with some good other resorts, and it makes it a good, being on the Powder Highway that we are, we actually say we’re the first stop on the Powder Highway. I think that it makes sense, and I’m not worried at all about how it’s going to interfere with our experience.

Kevin Choquette:

No, I get it. I think it’s an astute decision.

Howard Katkov:

No, it’s a good business decision. It was. And this is where I can make those decisions with confidence.

Kevin Choquette:

Yeah, right. And you got to evolve. The market’s changing.

Howard Katkov:

The market has changed, that you and I know, dramatically.

Kevin Choquette:

Yeah. So I’m going to go back to one other thing you mentioned, and then we’ll kind of try to hit a little bit of, not that this hasn’t been personal thus far, but a couple personal things, and I won’t keep you from the balance of your day. But you did say, head down, learn your space, listen and build quality teams, in terms of how you can have the guts to just move into a new space. You’ve got a small, high powered team at Red. The story I’ve told on this show a few times in the past is, I was listening to an MIT tech guy, and somebody asked him if he was afraid of the competing widget. And he almost immediately replied, “I’m not afraid of any technology. I’m afraid of competing teams, and who’s on that team.” I wonder if you could open up a little bit more about your view of teams, your current teams, the teams you’ve built in the past? Kind of what keeps you staying small in that core group that you have as advisors and lieutenants?

Howard Katkov:

Yeah. So because I’ve done so many diverse businesses, my teams have obviously been different. My real estate company in San Diego, we had I think, 4 or 500 people in that company, because we did our own concrete and framing marketing. But my core team was probably 20. My core team at cosmetics, we had I think 900 people, and that core team was also probably 20. Red Mountain, the core team in real estate is four. That’s really the total team, four people direct, that are on this almost 50 million project. My core team and my operating company at Red, I mean I had a manager’s meeting yesterday, a kickoff meeting for this season. There are 44 people, 44 managers. When we’re fully open, we have 350 people employed. I’d say my core team on the ski op side is less than 10, that I engage with.

And I don’t choose size for control. Size evolves based on the business. But I do believe that a smaller more intimate group, notwithstanding the size of your business, is easier to manage, especially someone like me that is hands-on. I don’t micromanage, but I’m very detail oriented. I believe in staff meetings on all my departments on a regular basis, with written agendas that people own. I’ve done that for at least 30 years. And so therefore if you have a team that is manageable, it becomes more intimate, and it’s better for those team members. Because my philosophy in team management, is team participation, consensus, discussion, disagreements, advocacy, open. I tell people that you’re all my partners. I’m not your boss, but I have the last word if it’s needed.

And I’ve always liked having the last call. I’ve only been in this role, and therefore it’s pretty much my DNA to be the boss, although I don’t act like a boss. And here’s the other thing that I would say that I’ve always had. I’m very accessible. I mean, I have people at any level of this ski resort that reach out to me with my phone number, and/or email, to talk to me about something. And I’m not going over anybody else. They know that it’s okay to call me. A lifty, somebody that works in ops, they have an issue.

So my philosophy also is, I don’t have walls between departments. That my communication flows between departments, and my authority flows through departments. But I am very light on authority, and very heavy on discussion, open discussion. Because I’m 30 years older than the average employee of our company now. And youth is, it’s my head of my marketing sales is 35. I can just go through all these departments. I mean, we are … Women, I probably have more women in director roles than any ski resort in North America. Top 10, I challenge anyone. I love working with women. They’re sensitive, they’re not so macho. But I nurture open discussion and give people the sense that they can talk, or ask, or contribute anything they want, and feel that they’re going to be listened to. That they can contribute and be part of it. And therefore, because of how, as I get older, and the voice of the world is younger, I have to make sure that I’m letting those people do a lot of these kind of strategic decisions that they believe reflect the demographic that we are speaking to.

Kevin Choquette:

That’s cool. I’m going to shift over a little bit here, to daily routines. I know one of them, because we’ve both been out on the bicycle together. Fitness and staying active I know, is part of your daily. My personal view is, if I can tee up some sort of routine that allows me to get my head, and perhaps my heart in the right spot for the day, if I do that on a regular basis then have a better chance of the idea, win the day, win it all. Not necessarily that a win is in fact the lens, but I find a lot of utility in trying to have a morning routine, a daily routine. I wonder if anything like that is a part of your day to day?

Howard Katkov:

I mean, physical exercise for me is really like a drug. I was a competitive swimmer from eight years old through high school. I became a runner for 20 years. I’ve been on a road bike now, a mountain bike, for 30 years. I can’t go three days without working out or I won’t be productive. It’s just so essential to a balance. And it can be, we have a new puppy, walking a dog for two or three miles. But I try to ride a bike three to four days a week, make eight hours a week. Walk the dog, do yoga. I lift a few weights, nothing to brag about. I’m more a cardio guy than anything, but I still love to ski. But I think physical exercise is, it’s just so essential for my personal wellbeing. And as you get older you have to be careful, because your body just does not heal the way it would do years ago.

But yeah. And the people, it’s interesting, the people that I’m closest to have that same mindset, that if you don’t work out physically, which contributes to you mentally, then it’s very hard to be effective. That’s in my case, in the job that I have, or any job that I’ve ever had.

Kevin Choquette:

Yeah, I couldn’t agree more. I’ve told some friends of mine that if you could actually sell the health repercussions of being … Everything you just mentioned by the way, with the exception of yoga, is a cardio pursuit. And the payoff for getting into that state on a regular basis, if somebody figures out that pill, it’s going to be better than the results they’re getting out of Botox, and Viagra, and all the other sort of designer things out there.

Howard Katkov:

Exactly. And in the mountains, and you know it, you’re in them. The Alpine, I mean we have a Sprinter van, and when I turned 65, which was seven years ago, we bought it on a fluke. My kids said, “That will last two months.” Well we put 55,000 miles on it. We’ve been to Canada nine times. It’s a place where we can get into the mountains, even if it’s two or three nights. And just as they say, what’s it, forest cleansing, or forest bathing the Japanese say.

Kevin Choquette:

There you go.

Howard Katkov:

Well, I fully believe in that. And what I love about Rossland is, it’s not just a skiing, there’s trailheads everywhere. We throw on snowshoes and go into the forest on a full storm day with our dog and our friends. And I mean, it’s so good for your head. It’s just so essential for life, and life goes by quick. And those things for me, are the things that I enjoy most. It’s not buying a new car, or … it’s physical activities in natural settings with people that you love. That is, to me, the greatest enjoyment.

Kevin Choquette:

I get that a hundred percent. Well look, you’ve shared some, any sort of potentially closing thought here on message to entrepreneurs who might be … I love what you said by the way. Yeah, once I got into my fifties I found a level of confidence that had been previously less abundant. Which is to say that the entrepreneurial journey, beginning, middle, end, is fraught with all sorts of challenges. So whether you’re talking to somebody who might be starting out, or somebody mid-career, or even the guys who are near the end of it, but still fighting the good fight, any thoughts that or wisdom you might share to that crew? Because that is a large part of who I think is listening to the show here.

Howard Katkov:

Well, I would say that never look back. I look back to learn, I never look back and regret. And follow your heart. I mean, if you have this desire to be an entrepreneur in whatever category. And it’s not for everybody. My daughter’s about ready to start a new agency, advertising and marketing. She’s 30, she’s my baby. And I am giving her some mentoring. And what I say is, “Expect it to be challenging. Make sure your life, the complexity of your life can handle the challenge of starting a company.” But for me, I’ve never worked for anybody. I have started seven companies. And there’s, for me personally, just personally, there’s nothing greater than to start with an idea, and start bringing together people that are like-minded. And building something that works, and that provides a product, and an experience, and a price, and a value and all those things. That it is just fantastic. And the failure rate is high. So it’s like swinging against 102 mile an hour fastball. It’s hard to hit.

And the way you minimize the risk, is do your homework. Don’t take shortcuts, don’t trust your gut. Bounce it off a lot of people. Because I’ve always said that you can get drunk on your own Kool-Aid, but not have a clue where you are. And so my advice is, on to be an entrepreneur, make sure you have good partners. Make sure you have enough money to at least get you to a point where you think you have something. Because if you’re just chasing money from the beginning and you can’t focus on the idea, then you’re diluting your efforts, and you’re going to minimize your opportunity for success. And pick those partners and make sure they understand the support that’s needed financially to give you that shot. And then work your ass off.

Kevin Choquette:

Indeed. So Red Mountain Lodge, anybody, you guys can Google it. Howard, I don’t know if you want to-

Howard Katkov:

Red Mountain Resort.

Kevin Choquette:

I keep doing it the wrong way. I’m sorry. I was trying to do it the right way there too. Red Mountain Resort. Thank you.

Howard Katkov:

redresort.com.

Kevin Choquette:

There you go.

Howard Katkov:

Is our url.

Kevin Choquette:

That is exactly what I was going to ask you. And if you want to leave any other contact information, or digital trail markers behind, I’ll hand it over to you for that kind of a comment.

Howard Katkov:

Yeah, I mean, when you asked me once about giving back, I mean I’m always willing to talk to someone about advice. I’m still very busy running two companies really. And that someday, if I ever slow down, I do want to give back, in the form of helping young entrepreneurs manage the mine fields that are out there. But yeah, it’s been enjoyable. Hopefully you’ve happy with this?

Kevin Choquette:

Yeah, absolutely. Howard, thank you so much for taking the time. I really appreciate it. I know you’re super busy and you’ve got a upcoming season opening, and I’m sure there’s a lot of logistics on just the operating company on that side. So thank you and-

Howard Katkov:

You’re welcome.

Kevin Choquette:

Thanks to the listeners for carrying along with us, and yeah.

Howard Katkov:

You’re welcome.