TF Management Group is ramping up its effort to convert hotels, which have been hit especially hard by the coronavirus pandemic, into multifamily, which is still in high demand.
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The New York-based investor announced that it will be allocating more capital toward hotel-to-multifamily conversions through its Tempo Growth Fund, though it didn't specify an exact amount. The fund began raising money last year and is expected to close in 2022.
"These conversion properties are offering excellent profitability for investors," TF Management CEO Mike Zlotnik said in a statement. "They're also the type of investment that serves communities hard hit by the pandemic."
Tempo Growth Fund plans to raise $25M by the time it closes, Zlotnik told Bisnow by email. The fund is diversified, with about 50% of it currently invested in five hotel-to-affordable multifamily projects.
The other half is in value-add multifamily, typically Class-C+ to Class B, which Zlotnik said are relatively affordable, as well as self-storage projects (old retail to self-storage), office-to-multifamily conversion, and distressed commercial debt.
About two years ago, TF Management acquired a property in Ogden, Utah, the 1920s-vintage former Ben Lomond Suites Hotel, and oversaw its conversion into a mixed-use property now called the Bigelow Hotel and Residences. The purchase and renovation cost about $13.5M, and TF Management sold the property in less than 21 months for $20.5M.
Tempo Growth Fund is now targeting further conversions, including two extended-stay Residence Inn conversions to housing in Winston-Salem, North Carolina, and South Bend, Indiana; two Ramada Inn conversions in Mesa, Arizona, and New Braunfels, Texas; a Best Western conversion in Longmont, Colorado; and conversion of an office building to multifamily in downtown St. Louis.
TF Management isn't alone in its ambition to convert moribund hotels into multifamily dwelling space. With occupancies in the Twin Cities hotel market down 33% in 2020 compared with the year before, Kaeding Development Group is planning to convert 295 rooms in its Crowne Plaza Aire property in Bloomington, Minnesota, into 229 apartments, Axios reports.
Of that total, 46 of the new apartment units would count as affordable housing, with the rest at market rate. Sixty-four of the apartments would be micro-units of 350 SF, with the rest as large as 1,200 SF. Kaeding would retain 135 rooms in the property as hotel units.
In Maryland, Varsity Investment Group acquired the 224-room Georgetown Suites Hotel soon after the property closed in November of last year, with plans to convert it into upmarket apartments.
"Housing is always a really good alternate use for buildings that are empty," Donnie Gross, a principal at Bethesda-based Varsity, told Southern Maryland Online.
UPDATE, April 1, 1:30 P.M. ET: Comments by TF Management Group CEO Mike Zlotnik were added.
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