Most people hear hotel conversion and picture a novelty deal. Dr. Alex Cartwright built a company around it, and the reason is arbitrage that is not subtle. His firm buys hotels that have no future as hotels. Sometimes they are old and not worth remodeling. Sometimes they are newer but stuck in a crowded market as the least desirable option. Sometimes they just carry too much debt. Whatever the story, the test is the same: is the highest and best use of this building multifamily? When the answer is yes, the multifamily price is dramatically higher than the hotel price, and the conversion unlocks the difference. The Denver project makes it concrete. A 310-room Holiday Inn sat next to Stapleton Airport until Denver built a new airport further out and the demand driver moved. Eleven stories, an atrium lobby, a balcony on every room, three underground racquetball courts. Nobody is building that again in a neighborhood of three and four story garden style apartments. Alex bought it a little under $30,000 a door and is spending $40,000 to $45,000 a unit to convert it, against comparable apartments in the mid to upper $200s. In this episode: What an end-of-life hotel is, and the three things that decide whether he enters a market at all Why a hotel is already most of an apartment building: individual bathrooms, HVAC, front doors, parking, soundproofing Which rooms get combined, and why going all studios pencils best but still is not the answer Why the due diligence period runs several months instead of weeks, and why sellers grant it The Denver numbers: under $30,000 a door in, $40,000 to $45,000 a unit of renovation, roughly $90 a door all in Why an extended stay hotel converts for $10,000 to $15,000 a room instead How lenders underwrite the deal off stabilized value, the same way they underwrite a flip off ARV What cities are actually afraid of when you ask for the rezone, and the conversation that gets them to yes The rent-burden math: more than half of rent-burdened Americans earn $45,000 to $75,000 a year Cutting a resident's housing cost by 35 to 40% without a dollar of taxpayer money Plus the Final Five, a poem called The Man in the Glass, and why you should always be looking for your next mentor. About Dr. Alex Cartwright Dr. Alex Cartwright is the founder of HotelSHIFT Capital, based in Providence, Rhode Island, which acquires end-of-life hotels and converts them to multifamily housing. He spent ten years as an economics professor before moving to the operating side. Connect with Alex: hotelshift.capital. He writes the mailing list himself. This week's book: How Elon Musk Thinks. He also recommended the economics blog Marginal Revolution and the All-In podcast. Chapters 00:00 The rent-burdened middle: $45k to $75k a year 00:35 Welcome to Real Estate Underground 01:21 On location in Rhode Island 01:37 Meet Dr. Alex Cartwright of HotelSHIFT Capital 02:02 We are not in the hotel business 02:23 What an end-of-life hotel is 02:46 The arbitrage: hotel price versus multifamily price 03:04 Fundamentally we're in the apartment business 03:20 The buy box, part one: rent level 04:20 Part two: density and smaller units people accept 04:55 Part three: the regulatory environment 05:15 Why a hotel is already most of an apartment building 06:01 Floor plans: what gets combined and what does not 06:56 Why all studios pencils best and still isn't the answer 08:02 Ed on churn and sticky tenants at the best price in the market 09:05 Sponsor break 10:01 Vertical management or third party 10:41 Hold period, and where Opportunity Zones fit 11:08 The 24 to 36 month renovate-and-lease-up plan 11:18 Refinance and return roughly 100% of capital 12:00 Why due diligence runs months instead of weeks 12:43 The Denver deal: a 310-room Holiday Inn 13:27 Why hotels break down above 200 rooms 13:38 The airport that closed and took the demand with it 14:13 Bought a little under $30,000 a door 14:29 Six months of due diligence and Denver's energy codes 14:48 Adaptive reuse and why the architect comes in early 15:24 Construction cost: the more vertical, the more expensive 15:52 Eleven stories, an atrium, a balcony on every room 16:25 $40,000 to $45,000 a unit, and what that buys 16:44 Putting a kitchen in every room 17:08 An 18-month budget they expect to beat 17:27 Extended stay hotels convert for $10,000 to $15,000 a room 18:39 About $90 a door all in against low $200s 19:37 A-class amenities at a B-plus rent 20:16 How he finds these projects, and why there are more than he can buy 20:39 Why multifamily always deserves a remodel and hotels do not 21:21 The flag treadmill: a new brand every few years 22:24 Fewer hotel buyers, fewer hotel lenders, better deals 23:00 What changed after COVID 23:39 How lenders underwrite it, the same way they underwrite ARV 24:13 Rezoned before closing, so it's multifamily that needs work 24:35 What cities are actually afraid of 25:07 Not capital-A affordable housing 25:44 Who really lives in a $50 a night hotel 26:30 The conversation that gets a city to yes 27:34 The Final Five 27:46 Purpose: ten years teaching economics, and what changed 29:27 What rent burdened means 30:07 More than half earn $45,000 to $75,000 31:32 Cutting a resident's rent by 35 to 40% with no taxpayer money 32:32 Best advice: always be looking for your next mentor 33:57 Ed on Mike Godman and the 19 ways he was screwing up 36:24 The decision he wants back: firing too slowly 37:53 Why the person you fire is often relieved 38:47 The bookshelf, and what he's reading now 39:21 How Elon Musk Thinks 40:38 Marginal Revolution and the All-In podcast 41:01 How he defines success 41:55 The Man in the Glass 42:28 Cars, and the Harvard Classics 44:42 Where to find Alex 45:32 Outro Real Estate Underground Hosted by Ed Mathews of Clark St Capital. New episodes every Tuesday. clarkst.com/podcast Elevista - Speed as a Service™ Elevista Connect is the first AI-powered lead conversion system built for real estate investors. 🎧 Subscribe to Real Estate Underground for weekly insights on building wealth through real estate, without sacrificing your sanity. Additional Resources: Clark St Capital -> Passive real estate investments for busy business owners and executivesElevista -> AI SaaS for real estate investorsClark St Academy on YouTube -> Learn how to invest in real estateSocial Media: LinkedIn -> Ed Mathews (President at Clark St and Elevista)Heads up: If you find this week's book intriguing and you buy using our link, we receive a small commission that helps support the show. Thank you!
