Project Update: Hedge & Alma Hotel Conversion Project
Project Introduction
During the onset of the COVID-19 pandemic, the US hotel industry suffered immensely, and thousands of hotels in the Austin area were forced out of business.
With this in mind, institutional investors targeted economy hotels, many of which were operating at major losses, and some distressed and facing foreclosure with impending mortgage default.
Thus, intuitive investors like us seized the opportunity to acquire these hotels, with local prices ranging as low as $20,000 to $30,000 per unit.
Real International acquired these distressed properties at significantly reduced prices in collaboration with partners. Strategizing with the market, we promptly capitalized on the opportunity to initiate hotel conversion projects, adding hundreds of affordable apartment units to the Austin market, effectively remaining close to the in-place cap rate of hotel operation while adding multitudes of value to the property.
Project Overview
Hedge and Alma are part of a series of hotel-apartment conversion projects launched by Real International in 2020, all centrally located with frontage to the bustling I-35 corridor, attractive rents, and a 15-minute commute to all prominent employers in Austin.
The project aimed to acquire distressed hotel assets at extremely low prices, renovate and refresh units for apartment use, and operate them, promising both enhanced property values and attractive rental yields.
Following a period of stable operation, the plan’s timeline revolved around refinancing at an opportune time to cash out equity investors promptly.
Currently, both projects are leasing, with one approaching stabilization. A refi was conducted at an attractive rate prematurely to boost debt coverage.
Project Updates
Project: The Hedge Apartments
Address: 8300 N Interstate Hwy 35, Austin, TX, 78753
Type: Hotel Conversion (Value-Add)
Status: Leasing
Despite labor and supply chain challenges during the pandemic, we were able to successfully convert all units as planned and began occupying units in 2023.
We executed a refinance at a favorable rate in the fourth quarter of 2023, greatly reducing debt service while benefiting from property tax exemptions, effectively minimizing two conventionally titanic expense categories.
The leasing performance has been commendable, with rent levels exceeding expectations by over 50%. Significant rental growth is anticipated during peak leasing seasons, and the exit timeline aligns with the peak of the market.
Project: The Alma Apartments
Address: 9220 N IH 35, Austin, TX 78753
Type: Hotel Conversion (Value-Add)
Status: Leasing
While the project encountered some challenges during construction – namely compliance issues with the City leading to elevated costs and delays, the project obtained its occupancy certificate at the end of 2023 and kickstarted leasing, employing rent concession strategies to attract tenants and improve occupancy rates with great success – we leased 33% of the property by the first leasing quarter’s end. The project also benefits from property tax exemptions, relieving 85% of the property tax burden!
FAQ
- When will investors receive K-1 tax reporting forms?
- Our partners’ accounting teams are currently preparing project-level K1s. The due date is March 15th, 2024.Once we receive these project-level K1s, our accounting team will work with our CPA firm immediately to ensure the timely issuance of K1s to our investors. Typically it is ready within 30 days of receiving the project K1. We anticipate that the majority of project K1s will be ready by early April 2024.
However, in some cases, depending on the complexity of the projects, the K1s may not be available until after the tax filing deadline, which is April 15th, 2024. Each year, we strongly encourage our investors to consider filing an extension because many of the project K1s are issued after the April tax filing deadlines.
Please consult with a professional CPA for your tax matters.
- Our partners’ accounting teams are currently preparing project-level K1s. The due date is March 15th, 2024.Once we receive these project-level K1s, our accounting team will work with our CPA firm immediately to ensure the timely issuance of K1s to our investors. Typically it is ready within 30 days of receiving the project K1. We anticipate that the majority of project K1s will be ready by early April 2024.
- Who can investors reach out to with further questions?
- Feel free to reach out to our Asset Manager, Milan Arimilli, via email at milan@realinternational.com.
Thank you for your continued interest and support in our projects. We remain committed to delivering value and transparency to our investors.
