They had a crazy idea, and it worked

Written by Tyler Kastelberg

July 10, 2022

Happy Sunday!

Grab a seat in that spot in your house where your kids can’t find you – this week’s newsletter is a 2 part special. 🎉🥂

We’ll start with 1) an interview with multifamily investor Saber Equity, which is building a reputation as a hotel to apartment-conversion expert, followed by 2) a few real estate headlines to watch.

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They had a crazy idea, and it worked …

While COVID-19 left multifamily comparatively unscathed, it decimated the hospitality industry. Numerous hotel properties were left underutilized and many shut down. While many investors dumped hospitality properties, Charlie Rushton and Kyle Hauge saw a massive opportunity: converting hotels to multifamily properties.

The two met at a business mastermind group and quickly realized their skill sets in hospitality and investing were highly complementary. After several small co-investments, they launched a more formal partnership, Saber Equity.

What does Saber Equity look for in hotel conversion investments?

1. Easy to convert properties

“We primarily but not solely focus on extended stay hotels, which have mini-kitchens,” Charlie says. “This makes them better in terms of cap-ex when it comes to converting to apartments, but what we’re more focused on is the population growth and job growth in the local market.”

2. Strong demand for smaller units

Also, Charlie says, his firm prioritizes areas with a big deficit in studio and small 1-bedroom 1-bathroom units. Arbitraging between demand drivers in these different property types can result in big wins. 

Read more about Saber Equity and its strategy here, including how they underwrite hotel conversions.

Now, some headlines to keep an eye on…

Strong jobs report, but what does it mean?

In June, American employers added a healthy 372,000 jobs to the economy. At face value, this is great news but in light of so much other economic turmoil, it may do little to curtail a broader slowdown. Rate hikes are likely to continue as the Fed keeps trying to clamp down on inflation. On the other hand, gas prices and mortgage rates are already cooling off. Can you say “mixed signals?”

Betting big on hospitality

Our interview this week focused on a firm converting hotels to apartments but elsewhere, investors are going all-in on hospitality. Blackstone recently purchased an Australian casino and resort operator for $6.3 billion. Australia’s hospitality recovery lagged America’s, and Blackstone is betting that the country is now in a recovery mode that will benefit acquisition target Crown Resorts Ltd.’s casino hotels. Blackstone has a “turnaround job” now that it owns the operator.

Investing in ESG

Another Blackstone story, but it’s an important one: the biggest tech funding of the week comes by way of Xpansiv, which runs a carbon offset and environmental commodity marketplace. Xpansiv received a $400 million investment from Blackstone, bringing its total capital raised to $580 million. With additional ESG regulations coming down the pike around the world, companies in a range of industries are looking for ways to offset their environmental impact. The new funding could help Xpansiv make that process more efficient, and help boost the entire environmental commodities ecosystem. 

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