"Hotel to multifamily conversion portfolio located in high quality Arizona submarkets acquired at 25% discount to comparable properties."

-David Zeff, Sterling Real Estate Partners

Top Questions

All answers are provided by the sponsor, Sterling Real Estate Partners, or its representatives.

Why are you buying this property?

David Zeff, Sterling Real Estate Partners: "This is an opportunity to acquire two off-market hotels in highly desirable Arizona locations. The all-in price of the hotels converted to apartments was acquired at a 25% discount to the market value of apartments trading today. This arbitrage opportunity was recognized as a means to produce attractive risk adjusted returns."

What are the most important aspects of this investment opportunity for the investors?

David Zeff, Sterling Real Estate Partners:

• "Sterling is acquiring the properties at a 25% discount to current market values."
• "Both properties are located in A+ locations."
• "The underwriting has conservatively projected stabilized market rents towards the bottom of the submarket. These affordable rents will reduce the risk profile of the investment."
• "All entitlements are in place. The heavy lifting for the zoning has already been completed by Sterling."
• "There is an opportunity to develop an additional 154 units on the Tucson Hotel site. This portion of land has been valued at 6.5M (CBRE)."

What is your investment strategy/business plan?

David Zeff, Sterling Real Estate Partners: "The focus of the business plan is to re-develop and stabilize the converted asset while minimizing lost cash flow due to construction."

"Sterling has planned to minimize lost cash flow by engaging a third party hotel operator to operate part of the Tucson building as a hotel while adjacent buildings are being converted to apartments, and a third party will be leasing the entire Scottsdale Hotel to generate cash flow while final construction permits are processed."

"Both properties will be stabilized and refinanced in year 3, generating a favorable cash on cash return in the following two years before the property is sold."

How has COVID-19 impacted your business plan?

David Zeff, Sterling Real Estate Partners: "The decreased demand for hotels during the pandemic created an attractive entry basis. Re-entitling the properties added further value as there is a large arbitrage between hotel and residential prices."

What are the risks and how are you mitigating those risks?

David Zeff, Sterling Real Estate Partners: "Risk: Material and construction costs are rising."

"Mitigation: Sterling has budgeted 10% contingency in Tucson and 5% in Scottsdale in case of increased material/construction costs."

"Both property submarkets saw a 10%+ rent increase in 2021; rents are likely to increase just as much, if not more than the increase in construction costs over the next year."

NOTE: All answers provided by the sponsor, Sterling Real Estate Partners, or its representatives.