Tower Capital recently arranged a $9.3 million acquisition and renovation loan for a 188-key, four-story, mid-scale, select-service hotel that will be repurposed to a 97-unit, B-Class, multifamily community. The property, built in 1987, was formerly the Quality Inn Phoenix Airport. The name is deceiving however, as the property sits at the base of the picturesque South Mountain Preserve and is walking distance to the Ahwatukee Country Club. Sky Harbor International Airport is approximately eight miles northwest of the property via direct freeway access.

The sponsor projects completing construction and converting all units in the first 6 months after purchase. The first tenants are expected to move in 7 months after closing. Lease-up is projected to take 12 months at a pace of eight (8) units per month with stabilization around month 19. Renovations will include the addition of kitchens (utilizing existing plumbing) as well as cosmetic improvements such as paint, fixtures, and countertops. The unit mix will consist of 1 three-bedroom unit, 8 two-bedrooms, and 88 one-bedroom units.

The non-recourse loan provides the borrower with a 36-month term plus an additional 12-month extension option. Out of the $9.3 million in proceeds, $2.8 million will be held back for capital improvements and $600,000 for interest reserve.

There were many challenges on this project which needed to be overcome, including an uncooperative seller and property insurance issues. Additionally, the change of use requires a small zoning variance which will not be finalized until after the loan closes. Many lenders are unwilling to close while there is any degree of zoning risk, however, we were able to get the lender comfortable with some additional credit enhancements.