It’s no secret that hotels have been struggling. Discount sites constantly loom. Cost-effective alternatives like Airbnb continue to nip at the heels of the traditional hotel experience. With the advent of COVID-19, travel all but came to a grinding halt. Swaths of the hotel industry collapsed, and many hotels went out of business.
Meanwhile, due to the pandemic, the country was suffering from record unemployment rates. In ever greater number, mothers and fathers struggled to provide for their children. In many ways, the future suddenly began to look less certain and opportunities for stability more scarce.
In this historical moment, investors find themselves in a unique position to help others while ensuring their own financial security…
Helping the community
At TF Management Group LLC, we work with investors that are good, community-focused people. As the country struggles to regain a sense of calm after the pandemic and economic challenges of 2020, using one’s capital to increase the availability of affordable housing is so very timely –– and more important than ever.
Even before COVID-19, families were struggling to find homes they could afford. As cities grew, demand for housing grew –– driving up market rates. Due to the ongoing shutdowns and industry transitions brought on by the pandemic, the number of those looking for affordable housing has only increased.
Additionally, new construction requires more time (especially when one considers pandemic-related delays on manufacturing, delivery and inspections), money, and risk.
Everyone needs a place to live –– and many people do not have the ability to rent or buy in new luxury buildings. For these reasons, your investment in conversion of hotels to multifamily housing is not just a great opportunity for you –– It is a truly community-conscious investment at a time where people could really use the help. What a great feeling!
The Opportunity
Due to the above factors, the costs to make productive use of a hotel asset are well below costs for new construction.
With the support of a competent operator to execute the conversion, construction, and lease-up plan – investing in the conversion of hotels to affordable housing can be an extremely profitable endeavor that helps the entire community.
The Concept
The process for hotel-to-multifamily housing is simple and straightforward:
- Buy hotel property from the bank (if REO), or as a distressed sell or short sale.
- Renovate the property to convert it from a hotel to multifamily housing. This takes different levels of investment depending on the condition and design of the property when it is sold.
- Lease up the property as a multifamily housing unit.
- Refinance, usually at 18 months.
- Hold for cash flow and sell as needed.
The Bigelow Deal
Take our recent deal in Ogden, Utah as proof. This is an example of what this kind of opportunity could look like even before COVID. The “all in” (purchase + construction + reserves and operating budget) cost on Bigelow Residencies — a former hotel — was $13.5 million for the full purchase and upgrade to the property for the conversion to multifamily housing. Initially projected to sell at $18.8 mil-lion, the property wound up selling for $20.55 million. The overall strategy featured a multitude of value-add components beyond apartment conversion, including: a restaurant equipped for catered events, operated by one of Utah’s top chefs; a common amenity game room; a brand-new fitness center; 7,000 square feet of new, basement storage-units and a preexisting lease on two Sprint cell-towers.
This is all very appealing on its own… However, we at TF Management Group LLC put a distinct emphasis on investing with highly competent and experienced sponsors and operators. Our faith in the project was largely based on the strength of its sponsor, Fairway America, LLC and Norcap Real Estate Investment and Development. We ensure that our investments are in the hands of proven and seasoned professionals, with a long history of strong returns.
When the deal was brought to us by Fairway America in May of 2019, Tempo Opportunity Fund LLC invested $250,000. The fund received $546,791.53 from the sale in less than two years. What began as a fantastic opportunity in its own right was only accelerated by the effects of the pandemic. If that’s not enough, we have another another example to offer…
Winston-Salem Residence Inn
For a project of a slightly different stripe, we travel down south for a deal in Winston-Salem, North Carolina. A Residence Inn, recently renovated in 2013, had been seized in foreclosure and was being sold by the lender that took it back. Residence Inn properties typically offer long term stayers a full kitchen and separate bedrooms. This initial design offered full kitchens installed in each unit, boasting 49,500 square feet of rent-able space. The central location- one mile from a busy medical center- plus the apartment-like amenities, such as a pool and fitness center, made this a great property to convert to affordable housing.
Tempo Opportunity Fund LLC took $700,000 of the mezzanine debt on this project, and Tempo Growth Fund LLC took $1 million in the equity of the deal.
Following the project life cycle, we foresee:
- Rehab and stabilization over the next 15 to 18 months.
- Refinancing at the 18 month point, resulting in a 60% return of capital.
- A projected five-year hold.
- A target IRR of 21.45%
As you can see from this example, Tempo Opportunity Fund LLC participates in the debt side of these deals and therefore earns higher yield. Tempo Growth Fund LLC participates in the equity side, which captures a bigger upside. This project offers an affordable housing opportunity to local residents, possibly even serving as student housing, being 1 mile away from Wake Forest University. We love the “do-good” projects, especially when they have strong economics for our funds.
The Ramada Inn
Looking southwest to Mesa, AZ, we discovered a Ramada Inn built in 1973. Located on a main commercial corridor, the hotel is conveniently situated opposite a light rail and boasts 60,000 square feet of rent-able space.
Part of the appeal of this deal was the location. Mesa is a thriving part of Arizona, right outside of Phoenix, with a population of 500,000 and a placement in a region encompassing 21 cities and 4.7 million people, projected to grow to 6 million by 2030. Education, commerce and tourism are a few of Mesa’s major draws. Companies like Apple, Boeing, and Mitsubishi all have a large presence. Arizona State University feeds the local economy as well. It is a fun and eclectic city with art, nightlife, and sports. Employment and median income are solidly on the rise. It’s clear that Mesa is an in-demand location with nothing but growth on its horizon
Using the same project life cycle, with a $4.2 million equity investment, we have a projected target profit of $4.15 million on the property, approximately doubling the equity investment in about 5 years. Again, the project life-cycle will mirror the Winston-Salem project with a 15-18 month rehab and stabilization period and a refinance after about 18 months. By holding the property investment for five years, the targeted rate of return (IRR) will come in around 20.22%.
The keys to success
As an investor, you know that any investment carries a certain level of risk. But we do everything we can to make sure those risks are calculated and safe when you invest with us. We use highly competent operators or sponsors, diversify among many investments to lessen your overall risk, and often consume the avail-able common equity on these deals and negotiate improved terms as the result.
The Two Funds
In case you’re not familiar with our two funds, here’s an overview:
Tempo Growth Fund LLC is a limited liability company organized in the state of Delaware. The fund’s areas of investment include Distressed Commercial Real Estate debt & Value-add investments such as storage buildings and multi-family housing.
Overview:
- Real Estate Growth fund
- Closed-ended
- Well-diversified
- Target annualized ROI = 12-18%
- Tax-efficient
- 5-7 years term
- IRA Friendly
- 8% Pref with 80/20 Class A ($1,000,000+), 70/30 Class B ($250,000 – $999,999)
Tempo Opportunity Fund LLC is an income & growth fund focused on well-diversified real estate investments. The fund’s strategy is to invest with the best operators in their niche, such as self-storage, multifamily, distressed & discounted commercial debt, conversion of hotels to affordable multifamily housing, office redevelopment to multifamily, shopping plazas, and many others.
Why people invest with us
- Experience: Past success is a great predictor of future performance, and Tempo Funds have an incredible track record and the most knowledgeable employees you’ll find anywhere.
- Diversification: We maximize the number of assets and sponsors while minimizing investments in a single asset.
- Best Access Point: Through us, you get access to many outstanding deals that are not available to the public.
- Transparency. We use reputable third party legal, administration and on-boarding companies to ensure that everything is done with optimal honesty and clarity.
- Communication: Investors can take advantage of our online portal, quarterly statements, investor-update Zoom calls, and annual meetings.
Finally, people trust us because of our simple business philosophy: Our investors come first. To learn more about either of our funds and how Tempo Funding is creating positive change in our communities through economically responsible in-vestment opportunities, contact us today.
Want to Learn More? Reach out to us at Team@TempoFunding.com or by phone at 917-806-5029 if you want to learn more about investing with us. You can also schedule a time to chat via Zoom.
Also, be sure to check out my latest podcast episodes:
- 084: What Is Self-Directed IRA Custodian With Jason DeBono
- 083: Where And How To Find Deals In Today’s Market With Todd Dexheimer
- 082: The Benefits Of Being A Passive Investor In Real Estate Investing (LP & GP) With Travis Watts
Thanks for reading,
Mike Zlotnik CEO, TF Management Group LLC
This newsletter and its contents are not an attempt to sell securities, nor to sell anything at all, nor provide legal, nor tax accounting, nor any other advice. The presenter is a private lending and real estate fund management business, and the information represented herein are purely for educational purposes and represents the opinions of the presented. Prior to making any investment or legal decision you should seek professional opinions from a licensed attorney, and a financial advisor.
TF Management Group LLC (TFMG) is an investment fund management company that specializes in both short-term debt financing for real estate “fix and flip” projects, and long-term “value-add” equity deals.
