Simple Arithmetic

 July 14, 2021

Sierra Vista Baseball

Here is the update for this week: There isn't one. Well, there is an update and the update is that not much changed this week from last. If the update is there is no update, isn't that an update? Reminds me of a baseball game when the announcer says, "After 5 innings there is no score." But, if you ask him what the score is he would say, "Zero zero". So there IS a score. Or, if there is no score how could there be a score? This has always puzzled me. Regardless of the score, there is always information to share and I will take this opportunity to share a few items of interest. 

Reminder: We are 3 weeks in from the submission of the application for permits. The City said the process is 4-6 weeks. So, if we are lucky we could have them in a week. Or, we are only 1/2 there, depending on how backed up they are there. Hope to have more specifics to y'all in a week! 

Someone asked me of the 100 units currently there, "How many will we rent out for STR, or Short-Term Rental?" As mentioned earlier, we can do day-to-day, week-to-week or month-month stays such as a motel would do. As you may recall from an earlier post, once completed there will be 65 apartment units. The answer to the question is 20 units. We have 20 units available for STR. And, if we do it right, many of those would convert to leases once we have the certificate of occupancy and the apartment conversion is completed. Currently 5 of the units are occupied. Marketing for the remaining units is going strong! 

Why?

Another question that has arisen is, "Why do a motel to apartment conversion?" This opened up a lot of dialogue to what type of buildings would we pursue to what unit size would work to extended stay versus tiny units to tower versus garden style and so on. The answers always vary. If you have an idea in mind to what you would really like to buy and no one is ready or needing to sell that type of project, you may wait a very long time. First, one must focus on what is actually available. We think it's easier to see what we can buy and then determine how we can make it work. These are all questions we may answer throughout my updates to this blog. For the time being, we will stick to the first one first, "Why do a motel to apartment conversion?" 

One, the motel industry is suffering in some markets. Hospitality has been hit hard due to Covid. According to an article in the Wall Street Journal in December, 2020, the motel/hotel delinquency rate on mortgages as of November, 2020 was 19.66%. So, there is an opportunity to solve the seller's problem regarding income. 

In the article it calls them tiny units. Many motels have square footage of 200 square feet. The good news with our building is the completed units will be 300-600 square feet. They are not large. However, they are not tiny either; very manageable. 

Big Enough

Next, it is easier to start with a building already there. In other words, to do ground up construction takes much longer. If we buy a building with good bones, meaning good quality construction, we are years ahead of a new build. We can complete the conversion in under a year. Whereas, in new construction, depending on the municipality, you may not have any physical change to the site in the first year and the project will easily go 3-5 years. We can then deliver units to the market much quicker and right now, when they are needed. 

Additionally, when we buy a struggling property the price is low enough to be a safe investment. Nationally, to build a garden style apartment building such as Thunder Mountain, the cost is $150-225 per square foot. We bought the building at $38.50 per square foot including the land underneath. After completion of the project we should be under $75 per square foot in total cost including the land. So, we are WAY below the replacement cost of the building. 

Kitchenette Concept

Lastly, the units can be easy to add kitchens or kitchenettes, depending on unit size. They already have the bathroom and showers. So, adding a kitchenette is quite easy. And, in some cases, a full kitchen can be added without exorbitant costs.  

Simple Proof

In the end, it all comes down to math. Do the numbers work? Simple arithmetic. Speaking of which, in 2nd grade Mrs. Olson taught us a trick on how to spell "arithmetic": A Rat In The House May Eat The Ice Cream. Isn't that amazing? Keep the rats out! Or, as we say at Bakerson, clean up the trash and the rats will leave...and we mean both the rodent and the human versions. 

And that is our project from my corner of the globe ~Bruce