Conversion Strategy
Why Apartment
The result of our conversions is an apartment, which we consider the crown jewel of commercial real estate. Here's why:
1. Recession-Resistant and Countercyclical Apartments tend to perform well during economic downturns, offering stability when other asset classes may falter.
2. Stable Cash Flow Rental income provides consistent, predictable returns, making it a reliable source of cash flow.
3. Growing Demand for Workforce and Affordable Housing With the ongoing need for affordable housing options, demand continues to rise, creating a favorable market environment for apartment investments.
4. Favorable Loan Terms and Tax Benefits Apartments often qualify for attractive loan terms, and investors can take advantage of significant tax benefits, further enhancing returns.
Why Hotels to Apartment Conversions?
We favor hotel conversions over other real estate strategies for several compelling reasons:
1. Straightforward Conversion Hotels often come equipped with existing infrastructure like bathrooms and, in some cases, kitchenettes, making the transition to apartments more efficient and cost-effective.
2. Prime Locations Hotels are frequently located near major transportation hubs and retail centers, providing future residents with convenient access to key amenities and employment opportunities.
3. Attractive Pricing and Financing Hotels typically trade at lower valuations compared to multifamily properties, and owners are often more flexible with seller financing or lease options, allowing for more favorable deal structures.
A Two-Fold Conversion
Hotel-to-apartment conversion is a dual-purpose transformation that delivers both societal and financial benefits:
Physical Transformation This process repurposes under-utilized or distressed hotels into newly renovated apartments, directly addressing the growing need for workforce and affordable housing in the U.S. By revitalizing these properties, we enhance community vitality and support neighborhoods that may otherwise be in decline.
Financial Transformation From an investment perspective, hotel-to-apartment conversions offer exceptional returns. Hotels are often valued at 3 to 4 times their revenues, resulting in double-digit CAP rates (10% to 15%). In contrast, apartments typically have single-digit CAP rates (5% to 8%). The potential for CAP rate compression—where lower CAP rates lead to higher property valuations—creates significant opportunities for superior financial returns.