Property Details
Stabilized Occupancy  Stabilized Cashflow  Repositioning Opportunity  NOI Growth 
Asset Profile
Opportunistic

Sterling Hotel Conversion Portfolio

Scottsdale & Tucson, AZ

Multi-Family Property

This deal is oversubscribed

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Sterling Real Estate Partners Scottsdale, AZ
Sterling Real Estate Partners
  • IRR 16.08%
  • Equity Multiple 1.98x
  • Hold Period 5Y
  • Minimum Investment $25K
  • Year 1 Cash on Cash 0%
  • Stabilized Cash on Cash 7.17% Y3
  • First Distribution Mar 2024
  • Distribution Frequency Quarterly
  • Co-Investment 25% ($5MM)
  • Preferred Return 8%
  • Investor Profit Share See Financials
  • Asset Profile Opportunistic
  • Loan-to-Value 65%
  • Current Occupancy 0%

About this Property

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

-David Zeff, Sterling Real Estate Partners

 

Property Sterling Hotel Conversion Portfolio
Purchase Price $31,500,000
# of Units 295
Current Occupancy 0%
Market Occupancy 96%
Loan to Value 65%
Property Addresses

Tucson

475 N Granada Ave
Tucson, AZ 85701

Scottsdale

9880 N Scottsdale Road
Scottsdale, AZ 85253

Purchase Price $14,000,000 $17,500,000
# of Units 210 85
Year Built 1965 1996
Year Renovated n/a n/a
Square Footage 160,456 sq. ft. 76,044 sq. ft.
Price per Square Foot $87.25 $230.13
Current Average Rents n/a n/a
Average Market Rents $1936 $2103
Loan to Value 65% 65%
Stabilized Loan to Value 58% 57%

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.

About this Property

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

-David Zeff, Sterling Real Estate Partners

 

Property Sterling Hotel Conversion Portfolio
Purchase Price $31,500,000
# of Units 295
Current Occupancy 0%
Market Occupancy 96%
Loan to Value 65%
Property Addresses

Tucson

475 N Granada Ave
Tucson, AZ 85701

Scottsdale

9880 N Scottsdale Road
Scottsdale, AZ 85253

Purchase Price $14,000,000 $17,500,000
# of Units 210 85
Year Built 1965 1996
Year Renovated n/a n/a
Square Footage 160,456 sq. ft. 76,044 sq. ft.
Price per Square Foot $87.25 $230.13
Current Average Rents n/a n/a
Average Market Rents $1936 $2103
Loan to Value 65% 65%
Stabilized Loan to Value 58% 57%

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.

Offered By

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Assets Under
Management

Currently
$54MM less than 10 assets
Exited
$306MM 10+ assets
Portfolio LTV
N/R  
Historical
Realized Returns

Total IRR
94.7%  
Equity Multiple
2x  
Annual Cash
N/R  
Years Of
Experience

As Principals
15+ years  
In Business
7 years  
Size
6 Staff  
* All information is reported by Sterling Real Estate Partners as of 1/11/2022.
Assets Under
Management

Currently
$54MM less than 10 assets
Exited
$306MM 10+ assets
Portfolio LTV
N/R  
Historical
Returns

Total IRR
94.7%  
Equity Multiple
2x  
Annual Cash
N/R  
Years Of
Experience

As Principals
15+ years  
In Business
7 years  
Size
6 Staff  
* All information is reported by Sterling Real Estate Partners as of 1/11/2022.

Financials

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Offering Financial

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Location Details

Scottsdale & Tucson, AZ

David Zeff, Sterling Real Estate Partners: "Central Scottsdale: The Scottsdale Hotel is centrally located in one of the most affluent sub-markets of Phoenix. Surrounding home values range from $1-5M. The hotel is positioned between downtown Scottsdale and the Scottsdale Airpark Employment Corridor, a target location for corporate headquarters and large regional campuses."

"Downtown Tucson: The hotel is located two blocks from Downtown and one block from I-10 with direct access to the frontage road and freeway. Tucson's favorable multifamily metrics are amongst the best in the U.S. The metro's YoY rent growth through Q2 2021 was 14.6%. It is also one of the country's most affordable multifamily markets with a rent to income ratio of 21%, the lowest ratio of all major markets in the West."

Documents

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Offering Agreement Documents

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