A MOTEL TO STUDENT HOUSING CONCEPT

A Long Shot, But…

Students, like the ones pictured in this article, are looking for good student housing.  In the right location, there is high demand for a place to live close to the campus.

For over a year now, we have been looking in Alabama, Georgia, and Florida for a motel that might be able to be converted to student housing or maybe workforce housing.    

We have found major obstacles in a few of our explorations.  But, what if there is such a property.  How would it work?

What follows is a hypothetical concept of a motel-to-apartment conversion we are seeking in three states.  The discussion and numbers here are not based on any specific property.  These are conceptual.

We are NOT making an offer.  NOT EVEN A SUGGESTION of an offer.

Perhaps you would be interested in an investment like this if something could actually be found.  Perhaps not.

We write this article as a way of better informing you of some of our thinking and analysis.  Who knows if we will ever find one.

Or, perhaps you know of a property like this and would like to work with us to make the conversion.

Take a look at this concept.

SPECIFICATIONS OF SUCH A PROPERTY

OVERVIEW:  Find a suitably-sized motel located very near a large student population.  Purchase it at the right price.  Have the way clear to convert the motel to efficiencies and studios.  Lease up and operate the property until stabilized.  Then sell it to a new long-term hold owner, harvesting the value added by the conversion to a higher and best use.

The studios might look something like this.  Who knows?

LOCATION.  We are looking for a college town, with a large enough university to support additional student housing.  Let’s say the student population needs to be above 14,000.  We have found over 30 colleges that meet these criteria.

Here is a list of colleges, student populations, and cities. Some are not appropriate. Some are promising.

COLLEGE	SIZE	CITY	STATE
University of Central Florida	68475	Orlando	FL
Florida International University	57942	Miami	FL
Miami Dade College	54973	Miami	FL
University of Florida	52218	Gainesville	FL
Valencia College	46521	Orlando	FL
University of South Florida	43846	Tampa	FL
Kennesaw State	41181	Kennesaw	GA
Florida State University	41005	Tallahassee	FL
Broward College	40784	Fort Lauderdale	FL
Georgia Tech	39771	Atlanta	GA
University of Georgia	39147	Athens	GA
University of Alabama	38390	Tuscaloosa	AL
Palm Beach State College	31816	Lake Worth	FL
Auburn University	30440	Auburn	AL
Florida Atlantic University	29772	Boca Raton	FL
St. Petersburg College	29183	Largo	FL
Georgia Southern	26949	Statesboro	GA
Florida State College at Jacksonville	23413	Jacksonville	FL
Hillsborough Community College	23183	Tampa	FL
University Alabama at Birmingham	21923	Birmingham	AL
Columbia Southern University	21104	Orange Beach	AL
Nova Southeastern University	20435	Fort Lauderdale	FL
Full Sail University	20170	Winter Park	FL
University of North Georgia	19783	Dahlonega	GA
Seminole State College	18104	Sanford	FL
University of Miami	17331	Coral Gables	FL
Troy University	16981	Troy	AL
University of North Florida	16776	Jacksonville	FL
Indian River State College	16686	Fort Pierce	FL
Florida Southwestern State College	16556	Fort Myers	FL
Eastern Florida State College	15820	Cocoa	FL
Florida Gulf Coast University	15031	Fort Myers	FL
University of South Alabama	14834	Mobile	AL
Santa Fe College	14324	Gainesville	FL
Savannah College of Art and Design	14265	Savannah	GA
Embry Riddle Aeronautical University	14168	Daytona Beach	FL

MARKET MATTERS.  Next, we are looking for the college town to have a growing economy and growing population. 

We would also like to see a few more factors in the market – tax friendliness, government decision-makers willing to allow such a conversion without too much unnecessary expense, low crime in the sub-market, etc.

PROPERTY.  Now comes the hard part, finding a motel within “walking distance” of that college campus with at least 50 units.

AVAILABLE FOR PURCHASE.  And still harder, talk with the owner and negotiate workable terms for purchase. 

And put it under contract. And close on it.

WHAT IF SUCH PROPERTY COULD BE FOUND?

Let’s suppose we could find a property that meets the above specifications. 

We know, it sounds like a very slim possibility.  And we have been looking for more than a year.  We have struck out in several communities.   This is a challenging idea.

But, how might the numbers play out?

Here are some ASSUMPTIONS for our hypothetical concept property:

• Let’s say 90 units
• All in cost (purchase, conversion, holding costs) $6.4 million
• End product, a newly renovated, Class B+ or better student housing property
• Funded through bridge loan and private investors
• Monthly lease for units $800/month
• 95% economic occupancy when stabilized
• Sell it after it is stabilized
• “After Conversion Value” ACV, $6.8 million at a 6 cap rate
• “After Conversion Value” ACV, $8.2 million at a 5 cap rate
• Net equity upon sale after 3 years $400K (not very good) at a 6 cap
• Net equity upon sale after 3 years $1.8 million (not bad) at a 5 cap
• Plus cash flow as it stabilizes to increase returns
• Either 1031 Exchange to delay capital gains or take the tax hit if necessary

Remember, this is a concept, not a real property.  We don’t know of a 90 unit property in one of these college towns.  If you do, please get in touch.

Our research says there is a market for this kind of student housing.  In some markets, this motel to efficiency conversion also works for workforce housing.

Some found going through Covid difficult.  We have talked with several property managers who did not have a negative year during the worst of it, though.

The market may not provide a property like this at a price like this with returns like this. 

Also, the future can have many surprises in it.  We don’t know what cap rates will be and at purchase.  And,  this is 0% occupied at purchase.  It will likely take months to convert and might have many municipal regulations and roadblocks.  Ask us how we know this.

Construction costs and timeframes during the conversion could be higher or lower than suggested here, as well.  Supply chain and skilled worker shortages may delay completion. 

There are plenty of variables in the rough cost/benefit analysis above.

Your quick analysis may suggest different results.  We would enjoy hearing what you came up with.

We are offering this partly as an intellectual exercise for you.  It is for us. 

It is also a way of testing the openness of investors, such as you, to a deal like this.  Please reply with your comments and questions.

SUMMARY

If we found a motel to apartment conversion property at the right price in the right community and were able to convert it in the right amount of time with the right financing and it would provide perhaps agreed-upon high single or even double-digit returns to our private investors, does this sound like something you would be interested in pursuing?

What if the returns were lower or higher?  Where do they need to be for you?

Our exit strategy for such properties might be to increase the value through the conversion and sell to a new owner after the property stabilizes, up to 3 years.  Is this too long or too short for the kind of investment you are considering?

What if your investment was a secured loan with an agreed-upon return rather than an equity stake?  What are the pros and cons of such an approach for you?

What kind of questions do you have, other than “Are you guys crazy?”?

LET’S GET TO KNOW EACH OTHER BETTER

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