Valuation Methodology - Multi-Family Portfolio - Mostly Furnished/STR/Mid-Term

[Kevin Morgan]

I have a portfolio of 5 small (6 to 10 units) apartment buildings in Suburban Chicago (close to city). 37 total units. I have converted most of the units to furnished rentals (mostly mid-term rentals). This lodging operation is seasoned and my furnished portfolio had 91% occupancy last year. I might be interested in selling but only if I am able to capture the value of the greatly increased NOI from the furnished business. The buildings are worth approximately $5.7M using traditional market rents ($283,000 NOI/5% cap). Buildings and apartments are fully renovated and truly turn-key and include parking. I can generate an NOI of $592,000 with my furnished lodging business. Value $7.9M using 7.5% Cap. These are fully furnished units in premium Chicago suburbs. Close to train lines and all major highways. I generally get 2X the market rent for a furnished mid-term rental (minimum 30 nights).

Question:  How to Structure a Sale Transaction?

A traditional lender probably would underwrite the deal using the "traditional" rental income and NOI for an apartment building. And it would secure appraisals using that NOI, sales comps and rental comps. Additionally, a buyer would have an interest in keeping the value of the buildings at a traditional market value for property tax purposes. Therefore, I think the deal might need to be done in 2 tranches. One for the real estate and another for the lodging operation. Have you seen such a transaction? Maybe I am over thinking this but in order to sell I need to capture the value of the lodging operation that I have spent years standing up. Any thoughts or constructive comments are appreciated. P.S. Cash Flow after debt service and all expenses projected at over $400,000 this year. My ROI is well in excess of 30% annual.