Tower Capital arranged $21.3 million in acquisition and renovation loans for two hotel-to-multifamily conversions in Arizona.
The first transaction is a $12-million acquisition and rehab loan for a four story, 158-key, interior corridor Best Western hotel in Tempe that will be repurposed into a 113-unit, Class B multifamily community. The second transaction is a $9.3-million acquisition and rehab loan for a four-story, 188-key, mid-scale, select-service Quality Inn Phoenix Airport hotel that will be repurposed into a 97-unit, Class B multifamily community.
“Affordable housing is becoming increasingly difficult to find near Tempe’s city core, and more renters seeking modestly priced units are being pushed from the core southward, towards the Tempe property” said Tower Capital co-founder Adam Finkel, CCIM. “The Phoenix property is ideally located at the base of the picturesque South Mountain Preserve and is within walking distance to the Ahwatukee Country Club, which will appeal to residents seeking housing in one of Phoenix’s most affluent submarkets.”
The Best Western hotel in Tempe was originally built in 1986 and underwent a major upgrade in 2013. The property features a business center, fitness center, and outdoor pool. The property is located in a popular part of Tempe, near Arizona Mills Shopping Mall, Arizona State University, Tempe Town Lake, and Phoenix Sky Harbor International Airport.
The construction and conversion of all the units to apartments are slated to be completed over a 15-month time period. The unit mix will consist of 47 studio units and 61 one-bedroom, one-bath units. Renovations will include the addition of kitchens as well as improvements such as paint, fixtures, and countertops. Some units on the ground floor will include the addition of patios. The non-recourse loan Tower Capital arranged provides the borrower with a 36-month term plus an additional 12-month extension option.
“High demand for this segment is evident in the low vacancy rate in the trade area,” adds Finkel. “The projected rents are below subsidized rent standards and should be popular as an affordable option in the Tempe market.”
The second loan involves a 1987-built hotel property in Phoenix located roughly eight miles southeast of Sky Harbor International Airport via direct freeway access. Completion of construction and conversion of all the units to apartments is expected within six-months after purchase. Renovations will include the addition of kitchens, as well as improvements such as paint, fixtures, and countertops. The unit mix will consist of one three-bedroom unit, eight two-bedrooms, and 88 one-bedroom units. The non-recourse loan arranged by Tower Capital provides the borrower with a 36-month term plus an additional 12-month extension option. Marquee Lodging Advisors handled the sale for both the buyer and seller of the Quality Inn to apartment conversion.
Finkel concludes, “We have experienced sustained increase in demand for more affordable housing in the Phoenix market due to population growth in 2020. Investor owners recognize the shutdown of hospitality industry over the past year due to the pandemic has created opportunities to transform underutilized hotels into income producing assets simply by delivering new residential options. These two deals are perfect examples of that trend.”