Prime Candidates for
Apartment Conversions

Hotels are frequently in great locations, have lots of amenities on site (pools, gyms, community spaces, etc.,) and sell at a steep discount relative to multifamily. 

Hotels typically sell for 3-4x gross revenues … which usually translates into a CAP rate in the low to mid teens (13-16%)

Multifamily (workforce class) in major cities, typically sells for a 6-8% CAP.

The main value add is the change of use (rezoning) because that changes how the building is valued — it’s cap rate arbitrage. The conversion is not only physical (construction) but also financial.

In short, workforce housing is where the demand is. New construction is simply too expensive to expand the supply of affordable rental units in most major metros. 

As homeownership becomes more expensive for middle income earners, the average income of renters has soared in recent years. A more affluent renter class has encouraged developers to buy B and C class multifamily and upgrade them. As more Americans rent and more buildings get upgraded, the supply of C class workforce housing has been falling. 

Workforce housing describes apartments that are basic in terms of their finishes and amenities. The units have mid-tier finishes, limited amenities and are designed to compete on the value they provide renters – not the luxurious feel.

In our view, tenants need an $800-1100/mo studio or 1 bedroom unit in all economic environments (expansion and contraction), and they are especially attracted to units with utilities, internet and cable included.  

We bring the construction, financing and operations experience needed to drive investor returns.

We typically renovate a property in phases so that we can continue to operate as an extended stay hotel and keep the property cash flow positive during construction operations. 

Usually, we are able to locate places to add additional rooms on properties we analyze, further increasing NOI.