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 new highest and best uses.
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.
Based in Texas, Saber Equity brings in institutional knowledge from the hospitality industry and looks for opportunistic investment opportunities, making a niche for itself in hotel to multifamily conversions.
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.”
Strong demand for smaller units
The 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.
With his background in the hospitality industry, Charlie brings lessons learned and best practices to his multifamily business. One of these lessons is the power of strong customer retention efforts. Another is the relationship between travel trends and investment opportunities.
Build loyalty through events and community
Saber makes efforts to provide an excellent amenity package at its properties, of the sort that might seem more typical in more expensive properties or hotels. That means the typical things like infrastructure for dogs, but also, when possible, on-site childcare facilities and tech tools to make living as frictionless as possible.
Additionally, Saber plans community events such as cookouts periodically. These are particularly common in the luxury apartment world, and they offer benefits for Saber’s renters as well.
Events and amenities keep renters happy, Charlie says, “and they help with retention. Also, if people are really satisfied with their apartment community, they may then recommend the building to family or friends in need of somewhere to live. This is an upside I think is often overlooked by operators.”
Data shows that renters really do respond positively to thoughtful hospitality touches like these. Research firm J. Turner recently asked thousands of renters what the two most important factors in an apartment are, other than location and price. The top responses were property amenities, at 79 percent, and a caring staff at 46 percent.
Remote work is surging right now, with some experts saying 25 percent of all professional jobs in the country will be remote by the end of the year. This trend empowers people to take longer or more frequent trips.
Within hospitality and multifamily, Charlie expects a commensurate reorientation. “The short-term rental and traditional hotel industries will become a little more integrated,” he says. “You already see some larger hotel companies, like Marriott or Hilton, looking into the short-term rental market.” As a result of these new market participants, Charlie says we might see some smaller Airbnb hosts and other short-term rental investors get pushed out of the market. But, he says, the concept will never go away.
How Saber underwrites deals
As a lean team with just two members, Charlie and Kyle found keeping everything in-house stifled Saber’s growth potential. In particular, the time demands of underwriting investments quickly and thoroughly, in order to win deals, were hard to satisfy. “We didn’t want to take on a salaried or constant wage employee, so we looked for different resources and companies that could provide what we were looking for on an ad hoc, as-needed basis,” Charlie says.
In the end, Saber ended up choosing to work with a Bullpen freelancer.
“We treat him as a member of the team first and foremost, and ultimately we use him for underwriting every deal,” Charlie says. “He has his own model, and is far faster and more robust than we could ever be. Very quickly we came to trust his viewpoints, since he has deep knowledge of the industry.” Working with a Bullpen freelancer has allowed Saber to more quickly underwrite deals, increasing their chances of winning the best opportunities out there.
Saber Equity is targeting 800-900 units under management by the end of the year.
The story of the firm shows how interconnected different property types, and the strategies needed to maximize their value, really are.
Whether it’s trading on the delta between hospitality and multifamily values or building a long-lasting resident base via the power of community, that interconnectedness is here to stay. Regardless of property type, real estate runs on excellent execution, thoughtful service delivery, and the ability to take advantage of opportunities as rapidly as they arise.
Conversations and discussion of winning commercial real estate strategies.