Speaker 1: And so we don't see a lot of competition with
developers looking to buy these properties. We do see other
hoteliers that might want to take them over and upgrade
them and maybe you know, take them from a Hampton
into a Mariad or you know, get them, get them rebranded.
But we typically find that are like, we're the best buyer.
We're the best buyer for these assets, and the sellers
want to work with us because we can pay a
little bit more than that hotelier is willing to. Because
hotels are worth three to five times the revenue that
they generate, whereas an apartment building is worth seven to
twelve times the revenue that it generates.
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Speaker 3: Ever, And welcome. You are listening to and watching the
Financial Survival Network. I'm your host, Carrie Lutz. Interesting person
you're about to hear from. Interesting investment approach. I don't
think you're going to find anything like it. Basically, what
they're doing is taking small motels hotels across the country
converting them to residential, affordable residential. When I think of
affordable housing, this seems to be the way to go.
It's a private approach, they're not taking government money to
do it, and they can produce more units probably in
a year.
Speaker 4: Than many of the.
Speaker 3: Housing authorities around the United States do in a decade.
A name of the person that you're about to hear
from is Ryan Sunday. Ryan, it's great to have you
on the show. So affordable housing. All we hear about
is that, you know, affordable housing, we don't have enough.
Government's got to build.
Speaker 1: More of it. But you seem to be offering a
different approach. Yeah, that's exactly right. Thanks for having me,
Kerry your intro on a spot on. We're shipping, you know,
one hundred to two hundred units at a time of
affordable housing, naturally affordable housing, and it only takes us
about six to twelve months once we buy a property
until we can start running it out to tenants so
we can we can get units to market and address
the need a lot faster than any ground up developer
could or certainly you know, a government authority could.
Speaker 3: Yeah, so you've gone from eleven hundred units in twenty
to eighteen hundred units last year. I assume the year
that's pretty furious pace. I mean, just dividing by three,
you do in two hundred thirty four units a year.
I assume that pace is increasing. For twenty four it is.
Speaker 1: Yeah, we're at about twenty five hundred units total. Now,
you know, we've had some sales in the portfolio, but
there's a lot of acquisition opportunities out there for us,
and you know, you kind of couple the distress and
hospitality with the insatiable demand for the affordable housing, and
we feel like we're onto something. So we see no
shortage of opportunities. And you know, our plan is to
do about ten, ten to twelve projects per year so
that we can execute on them pretty well.
Speaker 3: Well, I've got a place that you should definitely buy.
It's in Kassimi, Florida, right by Disney World. It's a
welfare hotel and I'm sure the neighbors would welcome you
taking it over. And it's got a pool, parking and
I once had the misfortune of staying there when I
fled from a hurricane, and there are guys with like
prison tattoos there.
Speaker 4: It was a scary place. Yeah. I hope the.
Speaker 1: City of Kassimi can work with us on some of
the change of use, permitting and zoning. We've had some
challenges breaking into that market, but we know, well, we're
trying to do some work down the street in Orlando,
and that is one of the biggest challenges with these
conversions because we're changing the use from a hospitality asset
to a residential asset and we have to you know,
the jurisdictions and the zoning and permitting folks have to
basically let us do that.
Speaker 4: Yeah, but so is that considered an up zone or
a down zoned?
Speaker 1: I would consider you know, we're moving it to its
highest and best use, so I'd considered it an up zone.
Usually we're not changing the underlyings zoning for the property itself,
because most jurisdictions won't allow for what's called spot zoning.
But we're going to the city and we're asking them
to change the definition of the zone to allow for
residential use or you know, there are other potential exception processes.
In states like Washington where I live, where we're based
as stage, they've actually legislated, effective June of twenty twenty five,
that all commercial buildings can be zoned by right to
so there isn't basically the local municipalities can't get in
the way of it. And so it's a different approach
than some other states. You know, some other states just
roll out the red carpet to try to, you know,
get us through. And then in some other states, you know,
they've actually legislated to make these conversion projects a little
bit easier.
Speaker 3: Yeah, they really should, because you know, if you watch
an episode of Cops, you could definitely find a lot
of prospective properties there because it seems like nothing good
is happening in these rundown, low life motels and bad
parts of town.
Speaker 4: And all that. And here you.
Speaker 3: Redo them, make them new, and you get like tax
payers in there.
Speaker 4: That's exactly right. You know.
Speaker 1: We've had some good success with this, especially in the
Hasmer district of Tacoma. We bought four properties on one
street on Hosmer Street. Hasmer Street used to be responsible
for ten percent of all the murders in the state
of Washington, Hosmer is in Tacoma, which is just south
of Seattle for those not from with the Northwest. And
you know, since we've taken over these properties, we've eliminated
violent crime. The police officers used to send three patrolmen
for every call that was made from one of these properties.
Now they only send one. So it's really it's a
really unique opportunity where you know, we're kind of doing good,
but it's also good business. Right. The underlying fundamentals of
the investment are pretty sound as well.
Speaker 3: So like in Florida, a lot of these older rundown motels,
they just knocked them down and put up the high rise,
you know.
Speaker 4: So so I.
Speaker 3: Guess that's kind of your competition, the people that want
to come in and knock them down and put up
a residential tower.
Speaker 1: Yeah, and there's fewer and fewer developers that are starting
right now, I think hermits the difference between housing that's
being created and housing that's being permitted has never been
wider in history than it is right now. Just because
inflation has been running rampant, the cost of labor materials
is so high, the cost of debt is so high,
a lot of ground up developers have just pulled out,
and so we don't see a lot of competition with
developers looking to buy these properties. We do see other
hoteliers that might want to take them over and upgrade
them and maybe you know, take them from a Hampton
into a Mariad or you know, get them get them rebranded.
But we typically find that are like, we're the best buyer.
We're the best buyer for these assets, and the sellers
want to work with us because we can pay a
little bit more than that hotelier.
Speaker 4: Is willing to.
Speaker 1: Because hotels are worth three to five times the revenue
that they generate, whereas an apartment building is worth seven
to twelve times the revenue that it generates, and so
you know, there's a bit of an arbitrage in there.
Obviously there's a lot of hard work to capture their arbitrage,
but it allows us to pay more than a hotel
operator would.
Speaker 4: Right, And so is there much competition for this out? There?
Are there other companies.
Speaker 1: Doing what you're doing less than ten I'd say they're
doing it repeatedly. There have been some that have pulled out,
some folks that unfortunately overpaid, and you know, we're kind
of coming into to grab those assets at a discount.
Speaker 5: As I say, there's.
Speaker 1: Really probably three or four groups that I'm aware of,
including ourselves, that are that are trying to do this repeatedly,
you know, ad scale in multiple markets.
Speaker 3: Interesting. Interesting, So how did you wind up getting into this?
By the way, Brian, great question. My interest in real
estate started at an early age growing up. My dad
was a pilot but had a small portfolio of real
estate in my hometown of Medford, New Jersey, and so
I spent the weekend swinging hammers and installing, installing toilets
and snaking.
Speaker 5: Drains with him.
Speaker 1: And you know, a nine to eleven hit, you know,
he lost his pension and took a big pay cut,
and you know, I saw the insurance policy and the
stability that investing in real estate gave to my parents,
and so I always knew I wanted that.
Speaker 4: One day.
Speaker 1: Fast forward, I went to college out on the West Coast,
ended up having a corporate career in mergers and acquisitions,
you know, helping big companies by smaller companies. Worked for
Amazon and Samsung and Redfit and a few just just
to name a few companies. But then start building my
own portfolio on the weekends doing it and doing a
similar thing where you know, I bought a six unit
and renovated it, then an eight unit, then a sixteen,
at a thirty eventually. Ask forward to twenty twenty and
Sage Investment Group got started and that's where I'm now
the CEO. I was still working in my corporate job
at the time, but I decided to move my properties
into Sage in exchange for shares of our fund and
then just became a passive investor in real estate.
Speaker 5: I decided to outsource the hard work.
Speaker 1: You know, to the folks at Sage, and you know,
I ended up joining the company full time as CEO
mid last year, so in mid twenty twenty three.
Speaker 4: Very cool story. So I never looked back.
Speaker 3: I think you said there's seventy thousand of these like
mom and pop motels around the country.
Speaker 4: That's exactly right.
Speaker 1: Yeah, in markets that we're interested in because we're looking
for wage growth, population growth, and we're also looking for
properties with about one hundred to two hundred units because
we want enough where we get economies of scale on management.
We can have an on site manager that you know,
it's kind of governs the low end and then on
the high end. We don't want to ship too many
studio units in any one market. So you know, we
don't want to take over four hundred unit property and
ship four hundred units of studio housing because that would
oversaturate the market.
Speaker 4: Right.
Speaker 5: Are these units furnished r Typically not.
Speaker 1: We only have one of our twenty four properties that
is furnished. We're actually just starting to lease it now
and where we're going to see how it goes. But
typically unfurnished units, but they have full, full kitchens for folks. Yeah,
So what's the biggest challenge you see in this market?
Speaker 5: Say, there's probably three challenges.
Speaker 1: The first is working with the local municipalities that you
know need to basically approve our change of use of
the buildings to give us the permits to you know,
convert these properties. That takes a long time, on average,
at least six months. And you know, some of those
municipalities treat this differently, and you know, maybe they assess
us impact fees because they think that we're going to
use more city resources, whether that's water or sew or parks,
and we have to work with them and educate them
on you know, hey, these are only amenitized properties. You know,
there aren't you know, families here, so we're not hurting
the school system. And then we also have to work
with them to figure out, you know what code they're
going to hold us to, you know what code book
they're going to hold us to. The energy codes are
ever changing, and sometimes we get curveballs thrown at us,
you know, on what requirements we're going to be held to.
So I'd say that's kind of challenge number one. Challenge
number two is just the development itself. It's certainly not
easy to do the work that we do. We just
started our nineteenth conversion project, so we certainly learned a
lot along the way, both in the diligence period and
also the process of you know, doing the renovation. And
then the third is just you know, sources of capital.
You know, we're always out there raising equity to fuel
our growth, and then also you know, finding lenders to
partner with to help you know, secure the properties as well.
Speaker 3: Interesting, you would think that most municipalities would be looking
to upgrade the quality of the properties. And thereby, because
I assume that after you get done with your renta,
your rehab, the realistic tax is going to go up
a little bit, They go.
Speaker 5: Up a lot of bit.
Speaker 1: Now the city loses the hotel tax revenue, and so
I haven't actually done the math recently, you know, on
one of our projects to see what they net out
to be.
Speaker 5: But certainly, you know, we pay a.
Speaker 1: Lot more in property taxes after the renovation, you know,
because we see typically least a fifty percent increase in
value over what we pay between the acquisition and the development,
but it's usually at least double what the property was
worth as a hotel.
Speaker 3: Well, you'd think if a place is an in by
ten out by two type of situations, thiseople are paying cash.
I don't know that a lot of them don't even
take credit cards. And nobody wants to leave a trail
that they were actually in this place, so probably they're
not getting their full full ride on the hotel. And
you know resource tax that accounty like in Florida, it's
like those are huge taxes to twenty percent many places. Interesting,
interesting business model. Obviously you'll be busy with this for
a long time to come, and we appreciate you coming
out just to tell us. Anybody wants to connect with you,
follow you how do you do that?
Speaker 1: Yeah, you can go to Sageinvestment dot com. You can
book a meeting with me there. You can also email
me at Ryan at Sageinvestment dot group, where we've got
a LinkedIn account. You can certainly follow us there as.
Speaker 4: Well, excellently.
Speaker 3: Well, there'll be a link in the show notes to
this interview on Financial Survival Network dot com, so you
just have to click it you find out at all
about Ryan and Sage Investment Group and the fund. If
you got a question for Ryan, shoot me an email
kl Atcarrie Lutz dot com. And while you're at the site,
please sign up for your free newsletter. Ryan, been a pleasure,
Thanks for stopping by. Thanks so much for having me.
Speaker 2: Erry, Thanks for listening to Carrie Lutz's Financial Survival Network,
your solution to today's trying times. For the latest, go
to Financial Survivalnetwork dot com. Financial Survival Network
Speaker 4: Now more than ever,