All Forum Posts by: John Wijtenburg

Rich Hupper I think you’ll be surprised what’s available. Start poking around, and you may be able to find something. The SBA loan programs are amazing for owner-operators. They provide up to 90% leverage in some cases. Good luck!!

@Rich Hupper

You nailed it. Get control of the property. Arrange bridge capital for the rehabilitation. Use tax incentives to recapitalize the deal.

For other government support, look into the following:

• Community Development Block Grants (CDBG)
• Neighborhood Stabilization Program (NSP)
• US Department of Agriculture Rural Development Program
• Small Business Administration (SBA) 504 or 7a loan programs

I don't know a ton about these, but there's probably a lot of information available online. Also, check in with your local planning department, chamber of commerce, or economic development office to find out about target improvement areas. They may be able to connect you with interested investors and/or operating partners.

Hi Rich,

This is a very interesting question. I've worked on a historic hotel restoration in the past that used state tax credits from Louisiana. My experience was a commercial property, so I'm not sure if it translates across all asset classes.

You can find money for historic rehabs at all levels of government - federal, state, and municipal.

The federal program is administered by the National Parks Service (https://www.nps.gov/tps/tax-incentives/before-you-...), and it gives you a 20% credit on Qualifying Rehabilitation Expenses (QREs). However, in order to benefit from this tax credit, you have to spend more than 50% of the underlying value of the asset. This is the only one that I'll mention in this reply, as the state and local programs are different depending on where you are.

Generally, state programs seem to be similar to the federal program. They require that the property is in a designated historic district or is on the National Register of Historic Places. Cities have additional funding mechanisms in the form of tax credits or reductions to encourage redevelopment to eliminate blight.

Most of these funding mechanisms come in the form of tax incentives, which complicates things if you want to use the money as part of your capital stack. Enter financial engineering...

Tax incentives are valuable in the open market for various types of companies and high net worth individuals. They often trade at a discount to the present value of the tax incentive, but may trade at a premium depending on the structure and market conditions. Use an attorney that has worked on these deals before. The 50,000 foot structure is that you'll be separating the ownership interest LLC from the taxable economic interest LLC, which allows you to sell your position in the latter to a third-party.

Note, there are some claw-back and burn-down provisions for this structure, so it's important to understand all the details before capitalizing tax incentives.

Note 2, there are other programs associated with energy efficient renovations and bonus depreciation that may apply.

Note 3, on the first project, I wouldn't rely on the tax credit to make the deal in your underwriting. Look at it as upside until you have a full understanding of how the process works.

On code violations and fines - those are usually title clouds that transfer with the property. Your title search should turn these up, and you can negotiate with the seller to clear the title or reduce the price appropriately.

I hope this helps.

John

Hi Joe,

I've looked at a lot of golf courses over the years, but there were only a few that penciled out. And these were in Florida! That said, you probably wouldn't have too much trouble getting a joint venture partner or LPs so long as you have the right business plans.

In my experience, I've seen golf course investments make money in one of two ways - redevelopment or upscale repositioning.

Redevelopment can sometimes be tricky if you have homes surrounding the golf course. Look for opportunities with a few acres near the club house to build additional for sale product or multifamily. Incorporate the golf course membership in your HOA fee for these new residents to ensure a consistent revenue stream during your holding period.

Upscale repositioning is more challenging. Essentially, you must have sufficient demand from the community to support this kind of strategy. Golf is an upscale, lifestyle sport. Look around for similar retailers in the area, like yoga and spinning studios, running stores, and lifestyle clothing stores. If there is demand for other lifestyle sports, the golf course may just be suffering from being too poorly positioned to attract the right crowd. This is a more advanced business plan, so it's probably best to bring on a partner with experience in the space.

John

@Nik S.

I've been struggling with an answer, as there are many factors to consider. Quality Inn & Suites is a good midscale brand, but your success is very dependent on location and building. I'll just run through a list of where I'd look first:

• Occupancy and ADR penetration vs. comp set - is there room to improve revenue?
• Interior or exterior corridor?
• Deferred maintenance - do you expect a brand-mandated property improvement plan (PIP)?
• Age of the building
• Competitive new supply - Quality Inn tends to be on the lower end of the market so you'll probably benefit from a rising tide, but older properties are severely impacted by new economy scale or midscale supply enters the market
• NOI margin should be >30% - if it's not, your RevPAR is too low or operations are unnecessarily fat
• It may be of benefit to align with a third-party operator that has some "skin-in-the-game," where you step into a joint venture limited partner role with major decision rights

This is a very high-level list that doesn't account for location, seasonality, and other factors that may have a material impact on performance. Please feel free to message me to go through details. I'm happy to sign an NDA to help you out.

This episode had a huge impact on my mindset, which I think is critical for any entrepreneurial venture. The concept of rich vs. wealthy is one that I've been struggling with for a while, and this gave a concrete example of why wealth is important. My belief of financial freedom always centered on things like vacations, making my own schedule, and so on, but this helped me realize that the financial security for family is provided by wealth not the rich guy treadmill.

That timing is amazing!! First of all, I highly recommend that anyone investing in hotels for the first time make the investment as an LP, in a joint venture, or use a quality third party manager. Hotels are more operating businesses than real estate, so it’s best to learn from a skilled operator before jumping in head first. Small inns and B&Bs are an entirely different business model than my experience. However, the basic principle is the same - heads in beds. A good manager is able to balance sales and marketing with operations to optimize profitability. After all, you’re dealing with nightly leases here. As you know from moving your multifamily business from owner managed to third party managed, scale is critical to making the switch. There are certain fixes costs associated with hiring a third party that are the same with a 10 room in as a 50 room hotel. You can probably get around that with a partner that will act as an innkeeper, who lives on site and is incentivized with profit sharing. Sorry for the rambling answer. Your idea sounds awesome, but it’s probably best to try it out stateside before going overseas.

Hi BiggerPockets community!!

I joined a few months ago, but I just recently started listening to the podcast and finding how helpful this forum can be. I’m excited to engage with everyone to find areas to add value. My experience is primarily in hotel acquisitions, asset management, and dispositions, but I've also been a multifamily broker.

Please feel free to reach out on anything that you think I could be helpful.

John

Robert, This sounds like a cool idea, and it’s nice that the property is in a supply constrained location. I would think your biggest challenges would be zoning and getting the right commercial tenant. I would look for a lifestyle tenant, like a hip, boutique coffee shop or independent bookstore. This would add an amenity for the Airbnb guest, and it would be a local draw. Financing is another consideration. If you don’t have any experience with Airbnb or commercial properties, you may want to find a partner or you’ll probably have to take a recourse loan. A local bank may be a good source of debt, but you’re mixing some pretty risk uses. So, don’t be surprised for this to be a tricky one to finance. Regardless, it sounds like it would be a blast. I would go for it. John