Overview Derek sits down with Ryan Sudek, CEO of Sage Investment Group, to unpack a repeatable system for converting underperforming hotels/motels into studio apartments—filling an affordability gap while targeting strong returns. They cover market selection, underwriting, construction (sprinklers, sub-panels, kitchens), property management at 100–200 unit scale, and the capital stack behind Sage’s evergreen fund (quarterly distributions, 1031 within the fund, portfolio diversification). Expect practical detail on risk controls (change-of-use permits before closing, value engineering, local code strategy), tenant quality myths (longer average tenancy than market), and why exterior-corridor assets speed construction. The episode closes with goals (10–15 conversions/year, path to 15k units) and how deals actually reach the team (direct-to-seller, lenders, brokers, 60–70 LOIs out at any time). Key Takeaways Niche with low competition: Hotels are valued differently than apartments; conversion unlocks a step-up in value. Tenant reality ≠ myth: Converted assets showed longer average tenancy than national norms, supporting stable cash flow. Market selection > distress alone: Prioritize wage/employment growth; affordable rents still pencil outside “tier-1” cities. Speed & cost levers: Exterior corridors reduce build time (~20% faster); full kitchens + code upgrades (sprinklers, sub-panels) are standard. Operational scale matters: Staff on-site at 100–200 units; centralized construction/asset management drives consistency. Evergreen fund advantages: Diversification, quarterly distributions, 1031 recycling inside the fund, flexible exits. Risk mitigation: Don’t close before change-of-use; collaborate with jurisdictions; tighten cost ranges via repeatability. Deal flow is proactive: Long nurture cycles (18–24 months), direct outreach plus lender/broker channels, many LOIs out concurrently. Why Should You Listen? You want a repeatable adaptive-reuse blueprint that works in multiple states. You’re raising or placing capital and need a portfolio model (evergreen) that smooths cash flow and taxes. You’re curious how to de-risk entitlement & construction on conversions (permits, code, staffing, vendors). Relevant Topics Discussed Hotel vs. apartment valuation spread and where the upside comes from Market/rent comps (Denver studios vs. Carolinas), affordability positioning Unit specs: typical SF, full kitchens, amenities, common-area repurposing Construction/code: sprinklers, electrical sub-panels, energy code, interior vs. exterior corridor Org design: acquisitions, construction mgmt, asset mgmt, on-site staffing Capital: evergreen fund mechanics, 506(b) → 506(c), distributions & 1031 inside the fund Risk controls: purchase terms tied to change-of-use, cost discipline, jurisdiction approach Pipeline & sourcing: off-market, brokers, lender calls, LOI volume and timelines Time Stamps 00:00–03:30 Intro & Ryan’s background; mission and first conversion “light-bulb” moment 03:30–08:00 Why hotels → apartments work; valuation spread; market selection logic 08:00–12:00 Tenant quality myth-busting; occupancy and demand drivers 12:00–16:00 Exterior vs. interior corridors; schedule/cost impact; amenity strategies 16:00–21:00 Construction & code: sprinklers, sub-panels, full kitchens; working with jurisdictions 21:00–26:00 Ops at scale: team structure, on-site staffing, property management cadence 26:00–31:00 Evergreen fund model: diversification, distributions, 1031, 506(b)→506(c) shift 31:00–34:00 Risk mitigation & purchase terms (change-of-use before closing) 34:00–36:00 Goals (10–15/year; path to 15k units), deal sourcing & LOI pipeline; wrap-up #RealEstateInvesting #AdaptiveReuse #HotelToApartment #AffordableHousing #Multifamily #Syndication #EvergreenFund #1031Exchange #ValueAdd #ConstructionManagement #CreativeRealEstate #GenerationsOfWealth #DerekDombeck #SageInvestmentGroup #RyanSudek
