Fund Allocates More Capital to Hotel-to-Apartment Conversions

TF Management Group has decided to allocate more capital into hotel-to-multifamily conversions as part of its fund allocation strategy.

TF Management launched Tempo Growth Fund to focus on apartment-to-hotel conversions and other real estate strategies.  This fund started to raise capital in 2020 and is planning to close by Jan 2022. It will invest in multiple conversion opportunities, including two extended-stay Residence Inn conversions to housing in Winston-Salem, NC and South Bend, Ind., two Ramada Inn conversions in Mesa, Az., and New Braunfels, Texas, a Best Western hotel conversion in Longmont, Col., and a transformation of an office building to multifamily housing in downtown St. Louis (which is across from the Cardinals ballpark).

TF Management has a track record with these conversions. In Ogden, Utah, TF Management converted the Ben Lomond Suites Hotel into a mixed-use property called the Bigelow Hotel and Residences. The project, including purchase, renovation and closing costs, was $13.53 million.  Less than 21 months later, TF Management sold the building for $20.55 million, which gave the seller an internal rate of return on investment of 73.35% and 2.2X equity multiple. 

“These conversion properties are offering excellent profitability for investors,” TF Management Group LLC CEO Mike Zlotnik said in a prepared statement, “but they’re also the type of investment that serves communities hard hit by the pandemic.”

With demand for affordable housing at an all-time high and hotel occupancy collapsing during the pandemic, the conversions make sense. Most cities are in desperate need of more housing and TF Management maintains that local governments should generally welcome these transitions.

“The ever-present need for affordable housing has been especially exacerbated by the pandemic, as many people find their livelihoods impacted,” Yuriy Novodvorskiy, COO of TF Management Group LLC, said in a prepared statement. “These conversions are not just an excellent investment opportunity, but provide a critical value to communities—a long-term benefit that many of our investors care about and support.”

TF Management isn’t the only firm pursuing hotel-to-apartment conversions.

Harbor Group International is providing $27.5 million to a hotel-to-multifamily conversion project in the Coconut Grove neighborhood of Miami. The borrower is AB Asset Management, which used the funding to acquire and redevelop the property into a Class A multifamily community. The project is expected to be completed in September 2022. 

Earlier this month, CAI Investments secured $100 million through Parkview Financial to reposition Harrah’s Reno Hotel and Casino into Reno City Center, a mixed-use property with 528 apartment units and 250,000 square feet of office and retail space. The property is located in an Opportunity Zone, and completion is scheduled for summer 2022. In addition to securing debt through Parkview, CAI secured equity through Gryphon Private Wealth Management’s Opportunity Zone fund.